Brazilian Real: Carry support and risks surrounding Lula’s re-election – BBH

The Brazilian Real (BRL) faces near-term downside, according to Brown Brothers Harriman’s (BBH) Elias Haddad. Assessing Brazilian assets after President Lula’s unexpected reelection, Haddad expects markets to reverse the earlier Bolsonaro-driven rally as rising public debt adds pressure. Legislative constraints, attractive carry and Brazil’s commodity exposure could nevertheless contain BRL losses and eventually present a buying opportunity.

BRL faces near-term pressure, with structural support intact

"Lula’s surprise reelection puts Brazilian assets at risk in the short-term but could set up a buying opportunity."

"Luiz Inácio Lula da Silva secured a fourth presidential term when prediction markets assigned an 80% probability to a Flávio Bolsonaro victory."

"As such, BRL is poised to unwind its rally following Bolsonaro’s strong first round showing earlier this month."

"Lula’s greater tolerance for rising debt adds to BRL headwinds. Brazil’s gross public debt has risen from 71.7% of GDP when Lula took office in January 2023 to 83.0% of GDP in August 2026, the highest since 2021."

"However, legislative constraints should keep BRL weakness in check. Lula faces a conservative Congress and needs centrist support to pass legislation, limiting the scope for runaway fiscal expansion."

"Importantly, Brazil’s attractive carry and strategic exposure to commodities linked to energy, AI, and defense remain key structural tailwinds for BRL."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Find out more.)