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BRICS currencies on verge of short gains - hedging perspectives

FX_IDC:USDRUB   US DOLLAR / RUSSIAN RUBLE
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BRL: We believe Brazil is entering a regime of fiscal dominance, where an increase in real rates would elevate the government's interest payments and worsen debt dynamics.

The central bank of Brazil left its benchmark interest rate unchanged at 14.25% for a 5th straight meeting on March 2nd, taking into account domestic and especially external risks and in spite of soaring inflation . Six of eight policymakers voted to hold SELIC rate and two decided voted for a hike.

Selic hikes would be counter-productive since the expectations of debt monetization through higher inflation would increase.

Retail sales and inflation are the key areas to look out for in this week in Brazil.

USDBRL             forms shooting star with RSI downward convergence above overbought territory, as a result we eye on shorting near month futures for hedging downside risks as the dips are expected to drag further but not a drastic slumps.

RUB: In Russia, we forecast a decline in headline inflation in February to 8.4% y/y, from 9.8% last month. However, this was the result of base effects, and the current trend is not favourable.

The RUB has sold off again in recent months as global oil             prices have fallen, causing monthly inflation to accelerate.

Annualized, monthly inflation is now at 11%, just equal to the key rate of the Bank of Russia ( CBR             ). Thus, we think the CBR             is likely to keep its key rate unchanged at its March MPC             .

This week's key data elements for Russia are FX reserves and balance of trade.

USDRUB             Monthly technical outlook: same is the case with this pair like USDUSDBRL, a shooting star pattern with bearish convergence on RSI to continue for next month or so, we advise no go short in NDFs for potential downside risks.
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