USD/BRL Outlook:
The USD/BRL pair is slightly weaker but likely to move sideways, trading below the recent average and within the mid-range of the last three months. The pair is close to the recent lows, yet there isn’t a strong driver pushing it in either direction.
Key drivers:
- Rate gap: The Federal Reserve's interest rate policy remains aggressive, while Brazil’s Central Bank has kept its Selic rate unchanged, creating a widening interest rate gap that favors the USD.
- Risk/commodities: Oil prices are rising, which could support the BRL since Brazil is a major exporter. However, recent volatility in oil prices adds uncertainty.
- Political uncertainty: Ongoing political risk due to the upcoming 2026 elections in Brazil is increasing the BRL's volatility and risk premium.
Range:
Expect the USD/BRL to drift within the recent range, barring significant shifts in market dynamics.
What could change it:
- Upside risk: A decline in the upcoming New York Empire State manufacturing index could bolster the USD if it indicates broader economic issues.
- Downside risk: A resolution to political uncertainty in Brazil could strengthen the BRL, leading to downward pressure on the USD/BRL rate.
