The USD/BRL pair is currently range-bound, sitting slightly below the 90-day average and within the mid-range of the last three months.
Key drivers:
- Rate gap: The Federal Reserve is expected to implement rate cuts in 2026, contrasting with the Brazilian central bank's decision to maintain high interest rates at 15%, impacting the currency’s appeal.
- Risk/commodities: Oil prices are above their average, which supports Brazil's export earnings but introduces volatility that can affect the BRL.
- One macro factor: Persistent inflation in Brazil, remaining above the central bank's target, could prompt the Brazilian central bank to consider tightening policy further, which might affect the BRL's strength.
Range: The USD/BRL is likely to hold its current position while occasionally testing the extremes of the recent range.
What could change it:
- Upside risk: Any significant dovish comments from Federal Reserve officials could lead to a weaker USD.
- Downside risk: If the Brazilian government’s stimulus measures exacerbate inflation concerns, the BRL could weaken further.
