The current market bias for the USD to BRL exchange rate is bearish.
Key drivers include the interest rate differential, with the US Federal Reserve anticipated to implement further rate cuts by mid-2026, thus weakening the USD. In contrast, the Central Bank of Brazil has maintained high interest rates, although projections indicate potential cuts later in 2026, which may support the BRL. Additionally, Brazil's economic stability is under scrutiny due to ongoing fiscal challenges and political uncertainties, which could limit the BRL's strength.
In the near term, the exchange rate is expected to trade within a range, reflecting a moderate volatility as it currently sits 2.7% above its three-month average.
Upside risks could arise from a stronger-than-expected US consumer sentiment report, which might lend some support to the USD. Conversely, downside risks include deteriorating investor confidence in Brazil's fiscal health, which could significantly weaken the BRL and generate further swings in the exchange rate.
