BR BRL Brazilian Real Loading... : Bullish and Bearish Analyst Opinions

She likes the Brazilian real as a long-term carry trade but would wait until after the second round of the presidential election because headline risk makes the period before every election the worst time to be long.

As pesquisas eleitorais mais apertadas estão levando o mercado a precificar uma chance real de derrota de Lula e alternância de poder em 2026. O volume de compra de calls de EWZ aumentou de forma expressiva no início de setembro, com estrangeiros adicionando apostas via derivativos e opções, o que impulsionou a bolsa brasileira, derrubou o dólar para perto de R$ 5,15 e fechou toda a curva de juros futuros. Se Lula não for reeleito, muita coisa pode mudar.

The Brazilian central bank is trapped: if it cuts the Selic aggressively without addressing the fiscal problem, the market will not pass the easing through the curve and the exchange rate will likely jump, so BRL weakness is a key risk tied to premature easing.

Treasury buyback intervention transfers pressure from rates to currency markets, making the dollar the short-term loser; emerging-market carry currencies are attractive because their central banks fought inflation more aggressively and real yields in Brazil, Mexico, Colombia and South Africa are attractive.

Yen carry trades remain alive and well despite intervention risk; positioning data shows investors are still net short about 60,000 contracts and keep borrowing yen to buy high-yielding assets. Selling yen against Brazilian real has returned 15% this year, and NOK/AUD carry returns are above 10%, with easy pickings as long as volatility stays low.

The Brazilian real has lost nearly 90% of its purchasing power since 1994 and will continue losing value because the Central Bank's 3% inflation target is effectively a continuous debasement of the currency. A falling IPCA rate does not mean prices are lower; it means prices are still rising more slowly, so holding cash in reais keeps eroding purchasing power.

The US policy of actively weakening the dollar will benefit the Brazilian real. Even though Brazil's government lacks fiscal responsibility, the favorable external environment of a weaker dollar will help the real strengthen, along with other emerging market currencies.

The author notes that the Brazilian Real (BRL) is 'deeply in consensus UW [underweight] territory' against a max-overbought USD, implying a potential mean-reversion bounce. Risk: Continued USD strength or domestic Brazilian macroeconomic deterioration could delay the positioning reversal.

Latin American currencies (MXN, BRL, COP) are likely to appreciate against the dollar, benefiting from terms of trade, carry, and hawkish central banks. The dollar may slightly appreciate overall but more against DM currencies than against LatAm FX.

The Brazilian Real is not a fully convertible currency and the current government has abandoned the agenda to make it convertible. The central bank's proposal to freeze crypto transactions and its restrictive stance toward innovation signal a desire for more control rather than improving the currency, keeping the BRL weak and unattractive globally.

The US dollar is not strong across the board. Against key emerging market currencies like the Brazilian real and South African rand, long-term devaluation trends have broken. USD/BRL shows a head and shoulders top with a downside target of 4.6. USD/ZAR similarly broke down from a rising wedge. De-dollarization and commodity trade flows are strengthening these currencies.

James Lord favors the Brazilian real due to its solid domestic story, positive bottom-up fundamentals, and resilience beyond pure carry trade dynamics. He sees it as a currency that can perform well in the current risk-on environment.

He observes that central banks are diversifying reserves away from the dollar into a broader basket of other currencies, including Scandinavian currencies, liquid Asian currencies (Singapore, Korea), and liquid Latin American currencies (Brazil, Mexico), rather than a straight shift to the euro or yuan.