Brazilian Real Fluctuates Around 5.60 Against US Dollar – TD Securities

Elevated two-sided volatility around 5.60 is TD Securities strategists’ near-term expectation for USD/BRL, with Brazilian politics and fiscal concerns driving the pair following Lula’s unexpected election victory. Drawing parallels with the post-election rally in 2014, they argue that a sustained recovery in the Brazilian Real requires political uncertainty and concerns over fiscal policy to subside.

Election surprise fuels near-term volatility

"USD/BRL sharply rallied after the surprise election win for Lula. The 2014 post-election USD/BRL rally of 11.7% could serve as a point of reference for near-term price action. We expect elevated two-sided volatility around 5.60 in the near-term as Bolsonaro challenging the election result will likely keep political uncertainty high."

"USD/BRL looks back to 2014. USD/BRL sharply rallied following the surprise election win for Lula over the weekend. While the medium-term macro backdrop remains constructive for BRL given its carry and terms of trade appeals, near-term price dynamics will likely worsen toward 5.60."

"The 2014 Brazil election could serve as a point of reference for 2026. At the time, investors were also worried about Brazil's fiscal policy stance after the Dilma Rousseff election win. USD/BRL rallied by 11.7% into year-end before retracing by about 7% at the start of 2015."

"We expect USD/BRL to trade with elevated two-sided volatility around 5.60 in the near-term."

"The BRL will likely need to see a similar-sized move into year-end before it stabilizes, in our view."

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