Brazilian Real: Political backdrop favors gains against US Dollar - TD Securities

TD Securities highlights a constructive Brazilian Real (BRL) backdrop, with diversified commodity exposure and strong carry. Their short-term fair value model places USD/BRL near 5.00 excluding political risk, but they favor the cross below 5.00 toward 4.60 longer-term. A narrow first-round election result and center-right skew in remaining votes support Bolsonaro, and they would buy BRL on USD/BRL spikes.

Election dynamics reinforce BRL strength

"A political tailwind joins an already constructive BRL story, fueling today’s sharp rally. No Brazilian runoff has started with such a narrow first-round margin, but the Round 1 leader has won every runoff since 1989."

"The remaining vote also skews center-right, favoring Bolsonaro at the margin."

"Our short-term fair-value model puts USD/BRL near 5.00 excluding political risk premium, but we continue to favor the cross below 5.00 and closer to our longer-term fair value around 4.60."

"BRL retains a solid macro backdrop, diversified commodity/trade exposure and compelling vol-adjusted carry, even through further BCB easing. The election result removes a key near-term hurdle and reinforces LatAm’s broader rightward shift."

"We would buy BRL on any USD safe-haven-driven USD/BRL spikes, with scope to break the May lows and test 4.80 on a decisive Bolsonaro Round 2 win."

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