Brazilian Real: Election risks then renewed gains – Commerzbank

Commerzbank FX analysts Norman Liebke and Michael Pfister see the Brazilian Real (BRL) supported by the Brazilian Central Bank’s (BCB) hawkish stance and still-elevated real interest rates. They expect USD/BRL to stay under pressure ahead of the October presidential election as markets price political risk, before appreciating again with forecasts of 5.20 by year-end 2026 and 4.80 by end-2027.

Real pressured then seen appreciating

"As last year, the Brazilian Central Bank’s (BCB) hawkish stance has contributed to the real’s strong performance this year."

"With energy prices remaining high, market participants now expect the benchmark interest rate to be around 14% by year-end, which is in line with the current level."

"Despite the high real interest rate, the BCB has successfully convinced the market that there will be no more than one additional rate cut this year."

"In our view, the real is likely to remain under pressure against the US dollar until the presidential election in October, and inflation and interest rate trends will not resume their dominant role in BRL performance until after the election."

"Given the Brazilian central bank’s relatively hawkish stance, the real is likely to continue appreciating, so that USD/BRL should stand at 5.20 by the end of the year, once political risks have subsided, and at 4.80 by the end of 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)