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Economic Release Details: {JNTBEXPY Index ECOD} --GEAROID REIDY

--GREG SULLIVAN

(Bloomberg) -- Brazil’s real is trading at the strongest level in two months amid easing political concerns, expectation for dollar inflows from IPOs and a favorable external backdrop for emerging markets. The supportive scenario that brought the real back to the levels seen before the JBS crisis is expected to remain in place in the short term, according to analysts. One of the factors that could prevent an additional strengthening of the currency would be a reduction in exchange swap auctions, but most analysts believe the central bank will likely wait for some time before changing the pace of the auctions.

• For risk management purposes, it may make sense for the central bank to let some swaps contracts mature, says David Beker, chief economist and strategist at Bank of America Merrill Lynch in Brazil
  • Central bank may rethink the intervention for next month, depending on the performance of the real
• Real’s performance relative to other emerging-market currencies would be more important than the level itself to give any signaling to the central bank, says Gustavo Rangel, an economist at ING
• "I think there’s still ground before the central bank revises its strategy," says Juliano Ferreira, strategist at Tullett Prebon Brazil
  • The currency is still subject to some external events that may have only been postponed and we still have risks in the political front, says Ferreira
• If current conditions hold, central bank most likely will announce in September the rollover of the contracts maturing in October, says Mauricio Oreng, Rabobank’s strategist in Brazil
• If the real starts to slightly take off, central bank can let some swaps mature, engaging in a partial rollover, says Luiz Eduardo Portella, managing partner at Modal Asset
• Central bank will wait for the Federal Reserve to announce or start the reduction of its balance sheet to assess the market reaction before thinking about reducing swap contracts, says Antonio Madeira, an economist at MCM consulting firm
  • Authority will only start thinking about paring swaps auctions when there is a more significant improvement in Brazil[’s risk premium to below 200 basis-points
• "I don’t see the real falling below 3.05 per dollar; if it begins to trade below 3.10, central bank will likely stop the swap rollover program," says Paulo Nepomuceno, a fixed-income strategist at Coinvalores
• Along with the debate about when and if the central bank will change the swap rollovers, most analysts see a positive short-term scenario for the real, although still with internal and external risks
• The dollar is declining globally due to Trump’s government volatility; the Chinese economy has surprised positively and markets are postponing to 2018 the probability of U.S. interest increase this year, says Tony Volpon, chief economist at UBS
  • There is a very positive dollar / interest rates / commodities framework for emerging markets and the real should remain strong
• Daniel Weeks, chief economist at Garde Asset, highlights the trade balance strong results and the expectation for IPOs
  • As we enter a period of slow news in the external environment and recess at political activities here, we must remember that Brazil still has very high carry and "no news" is "good news" for Brazil, says Weeks
• External backdrop is very favorable to emerging markets, with Yellen seen as dovish and China surprising positively, while the political framework has not been disturbing in the short term, says Bank of America Merrill Lynch’s Beker
  • Balance of payments is very favorable for Brazil and we must not forget that there are many assets for sale in the country, and a series of concessions to be made, says Beker
• NOTE: In July, central bank signaled the full roll- over of the foreign exchange swap contracts maturing in August and continues to offer 8,300 contracts per day; there are no contracts maturing in September and maturity in October is of $8.57 billion
  • There is still $3.3 billion remaining for the central bank to rollover swaps this month; outstanding swaps at the central bank is $27.8 billion
• NOTE: Brazil’s real rose 0.15 percent to 3.1517 per dollar as of 2:35 p.m. in New York

Original Story: Mercado vê dólar perto do nível pré-JBS ainda sem despertar BC --With assistance from Ana Carolina Siedschlag. To contact the translator on this story: Daniela Milanese in Sao Paulo at dmilanese@bloomberg.net To contact the translation editor responsible for this story: Daniela Milanese at dmilanese@bloomberg.net; Rita Nazareth at rnazareth@bloomberg.net Reporters on the original story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net Editors responsible for the original story: Daniela Milanese at dmilanese@bloomberg.net Marisa Castellani

--GREG STOHR