Brazilian Real: What Do Election Flows and Fiscal Reform Prospects Signal? – Societe Generale

Buying interest in the Brazilian Real (BRL) has picked up ahead of the presidential runoff, according to Societe Generale. Despite a 3% retreat from its post-election high, the Real has attracted buyers around 5.10; the bank sees a low hurdle for a move below 5.00 if Bolsonaro wins. With a Bolsonaro victory as its baseline scenario, the institution anticipates better prospects for fiscal reforms and debt stabilisation.

How is election risk shaping the Brazilian Real?

"In Latam, flows have been stepped up into the BRL with the presidential runoff only four days away. "

"The real weakened by 3% from the post-election high two weeks ago but buyers emerged at 5.10 last week. The bar is low for a return below 5.00 if Bolsonaro clinches victory on Sunday."

"Two closely watched polls published on Monday showed differences between both candidates are narrowing within the margins of error. "

"Nexus/BTG Pactual puts Bolsonaro ahead by 0.6pp, down from 2.8pp. AtlasIntel/Bloomberg puts the lead at 2.2pp, down from 5.4pp."

"Under our baseline scenario of a Bolsonaro victory, the combination of a more market-friendly executive, a stronger conservative bloc and support from centrist parties should improve the prospects for advancing fiscal reforms aimed at containing mandatory spending growth and ultimately stabilising the public debt trajectory."

(An Artificial Intelligence tool helped produce this article, which was reviewed by an editor. Find out more.)