5.60 Area: Brazilian Real Volatility Against US Dollar – TD Securities

5.60 is the near-term level around which TD Securities strategists expect heightened two-sided volatility in USD/BRL. Following Lula’s surprise election victory, they see Brazilian politics and fiscal concerns driving the pair. Taking the 2014 post-election rally as a reference, they argue that political uncertainty and fiscal policy concerns need to recede before the Brazilian Real can sustain a recovery.

Election Shock Fuels Short-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.)