Reviving optimism among some investors, Valor Economico reported that tax revenue was better than expected in February, and the central government was headed for a second straight month of surpluses excluding interest payments. The real is still down 17 percent this year, the worst performance among 31 major currencies, as Finance Minister Joaquim Levy’s budget measures faced opposition in Congress and allegations of corruption at the state-controlled oil company drew street protests.

“After so many days of bad news, a second straight monthly surplus shows that Levy’s team is trying to do whatever it takes to meet targets,” Cristiano Oliveira, the chief economist at Banco Fibra SA in Sao Paulo, said by telephone. “Still, volatility is quite high, today’s news doesn’t establish a new trend and the currency should remain pressured in the near term.”

Reflecting projected shifts in the exchange rate, three- month implied volatility on options for the real remained the highest among 16 major currencies tracked by Bloomberg.

 

Eoin Treacy's view

Latin America has faced a major challenge in the greenback’s rally not least because so much debt is Dollar denominated. This has contributed to some major declines both in regional currencies and stock markets. With the Dollar hitting at least a near-term peak this week and with increasing potential for a reversion towards the mean, the outlook for Latin America is improving. 

The Bloomberg Latin America Dollar Index has developed a deep oversold condition over the last two months and mean reversion is looking increasingly likely. 

The Dollar has accelerated higher against the Brazilian Real and hit at least a near-term peak this week. Potential for at least some consolidation and possibly mean reversion has increased.