Brazilian Real: Are run-off risks tilted to the downside against US Dollar? – ING

USD/BRL remains near 5.05 following a gap lower to 4.95 after Flavio Bolsonaro’s strong first-round performance, according to ING’s Chris Turner. Ahead of Sunday’s Lula–Bolsonaro run-off, polls have narrowed to around 50:50, with changes to labour laws linked to Lula’s improved support. A Bolsonaro victory could take the pair down to 4.85/4.90, ING believes, while a Lula win could trigger a larger move higher.

Why is Brazil’s election keeping the Real volatile?

"Having gapped lower to 4.95 on Flavio Bolsonaro's surprise performance in the first round of Brazil's presidential elections, USD/BRL is now consolidating closer to 5.05. Ahead of Sunday’s decisive run-off between Bolsonaro and incumbent President Lula, opinion polls have tightened considerably, with some now putting the two candidates at 50:50."

"Lula’s improved polling appears to reflect last-minute changes to Brazil’s labour laws, including a Senate-backed reduction of the maximum working week from 44 to 40 hours and the effective abolition of the six-days-on, one-day-off (6x1) schedule."

"This Friday sees a final TV debate between the two candidates. The prevailing market view is that the polls overstate how close the race is and Bolsonaro is likely to pick up the majority of the first-round votes directed outside of the two candidates."

"That could see the USD/BRL gap lower to 4.85/4.90 next Monday morning. However, the bigger move probably comes to the upside should President Lula pull a win out of the bag."

(An Artificial Intelligence tool assisted in creating this article, which was reviewed by an editor. Learn more.)