USD/BRL Outlook:
The USD/BRL rate is likely to decrease, as the current rate is significantly below its recent average and near 90-day lows. Recent US economic data has weakened the dollar's position against the real.
Key drivers:
• Rate gap: The Federal Reserve's cautious approach to interest rates contrasts with Brazil’s steady Selic rate, which is maintaining a tight monetary policy.
• Risk/commodities: Oil prices are elevated, which often supports the Brazilian economy; however, the volatility in prices can be a double-edged sword for the BRL.
• Political uncertainty: The developing political landscape as Brazil approaches its elections is raising concerns, leading to a higher risk premium for the real.
Range:
The USD/BRL is expected to drift within its recent range, lacking a strong directional push either way.
What could change it:
• Upside risk: A hawkish speech from Fed officials could bolster the USD and help it gain strength.
• Downside risk: Continued adverse political developments in Brazil could further weaken the BRL.
