Poor daily performance – ING

The Brazilian real is underperforming, notes Chris Turner, FX analyst at ING.

The real outlook remains challenging

“China’s stimulus measures should have been positive for the real, but instead USD/BRL is trading higher towards the 5.60 area. Despite Brazil recently receiving a sovereign upgrade from Moodys, there are several factors that could explain the real’s underperformance.”

“One of them is the poor performance of President Lula’s party in local elections over the weekend, which could prompt the government to spend more ahead of the next presidential election in 2026. Second, 44% of Brazil’s government debt is on floating rates , and Brazil has the lowest share of long-term fixed debt in the region. Higher US bond yields are therefore a problem for Brazil.”

“Future interest rate hikes in Brazil should be enough to contain USD/BRL near 5.60, but the real outlook remains challenging.”