The senate's decision to launch impeachment proceedings against President Rousseff marks the beginning of a new era for Brazil. The process has so far been surprisingly smooth, in our view.
The new government now faces the delicate task of implementing an ambitious fiscal austerity/structural reform programme amid a deep economic recession, limiting the window of opportunity.
We revise our view on BRL to reflect the smoother-than-expected political transition and tailwind from increasing commodity prices.
We see USD/BRL trading around the current 3.45 level over the next month, and strengthening to 3.3, 3.1 and 2.8 on a 3M, 6M and 12M basis respectively, due to the Olympics and recovery in the Chinese construction sector boosting demand for iron ore.
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