Brazilian Real finds support from carry amid Lula re-election risks – BBH

Rising public debt and the reversal of the earlier Bolsonaro-driven rally are expected to weigh on the Brazilian Real (BRL) in the short term, according to Brown Brothers Harriman’s (BBH) Elias Haddad, who examines Brazilian assets after President Lula’s unexpected reelection. Nevertheless, Haddad points to legislative limits, Brazil’s appealing carry and its commodity exposure as potential restraints on BRL losses that could pave the way for a subsequent buying opportunity.

BRL Faces Near-Term Pressure as Structural Support Persists

"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."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)