USD/BRL Outlook:
The USD/BRL exchange rate is likely to decrease, as it currently trades well below its recent average and is near recent lows. This movement reflects broader economic pressures impacting the Brazilian Real.
Key drivers:
- Rate gap: The Federal Reserve's interest rate stance continues to support the strength of the US dollar compared to the Brazilian Central Bank's steady Selic rate, which remains high at 15%.
- Risk/commodities: The recent rise in oil prices has put additional pressure on the BRL, as Brazil is a major oil importer, complicating its trade balance amid a stronger dollar.
- One macro factor: Political uncertainty surrounding the upcoming 2026 elections in Brazil has raised the risk premium on the BRL, contributing to its recent depreciation.
Range:
The USD/BRL is likely to remain within the recent 3-month range, showing limited movement towards the extremes.
What could change it:
- Upside risk: A significant shift in US economic data, such as strong GDP growth, could strengthen the USD further.
- Downside risk: A resolution to the political uncertainty in Brazil that restores investor confidence could strengthen the BRL.
