USD/BRL Outlook: Bearish, as the rate is below its 90-day average and near recent lows, with limited drivers to support a rise.
Key drivers:
• Rate gap: The Federal Reserve is expected to cut rates while the Brazilian central bank maintains high rates, keeping the BRL relatively stronger against the USD.
• Risk/commodities: Oil is performing above its average, which typically supports the BRL as Brazil is a significant oil producer.
• One macro factor: Brazil's government stimulus measures are raising inflation concerns, potentially pressuring the BRL if inflation expectations rise.
Range: The USD/BRL rate is likely to drift as it remains within its recent range, but may test the lower limits due to bearish pressures.
What could change it:
• Upside risk: A surprising improvement in U.S. economic data might boost the USD.
• Downside risk: Persistent inflation in Brazil could lead the BCB to tighten policy further, maintaining pressure on the USD/BRL rate.