USD/BRL Outlook:
The USD/BRL rate is currently below its recent average and trading near recent lows, suggesting a bearish outlook. Pressure comes from both the stronger US dollar and domestic issues affecting the Brazilian Real.
Key drivers:
• Rate gap: The Federal Reserve's firm stance on interest rates is supporting the USD against the BRL, which is hindered by stable Selic rates in Brazil.
• Risk/commodities: Increased oil prices may negatively impact the BRL, as higher costs can lead to inflationary pressures and weaken the currency.
• Political uncertainty: The upcoming Brazilian elections are adding to volatility, increasing the risk premium for the BRL as uncertainty prevails.
Range:
Expect the USD/BRL to hold within its recent range, as movements are constrained in the current economic environment.
What could change it:
• Upside risk: A sudden shift in US economic data that may lead to further U.S. dollar strength.
• Downside risk: Enhanced political stability in Brazil resulting in reduced uncertainty and a stronger BRL.
