Brazilian Real: Election risks threaten Real – Societe Generale
Societe Generale’s Dev Ashish flags growing election and fiscal risks weighing on Brazilian assets. BRL has underperformed in LatAm, with USD/BRL nearing its 200-day moving average at 5.2042 and Bovespa breaking below its long-term average.
Societe Generale's Dev Ashish highlights growing risks due to the Brazilian election and fiscal situation, impacting the Brazilian Real (BRL). The BRL has been underperforming in Latin America, with the USD/BRL nearing the 200-day moving average at 5.2042 and the Bovespa breaking below its long-term average. A sustained move above the 200-day average could push USD/BRL to the 5.34-5.38 range, while a Lula's fourth term with a divided Congress is seen as the base case.
The BRL is the main underperformer in Latin America this month, with a 1.7% negative total return compared to 2% for the CLP and MXN. Dev Ashish assigns a 65% probability to President Lula securing a fourth term alongside a divided Congress, which could further weigh on the real. From a technical perspective, a break above the 200-day average could open the path to 5.34-5.38 in USD/BRL.
Investors are increasingly factoring in election and fiscal risks ahead of the presidential vote, potentially rotating towards the Mexican Peso (MXN) as a relatively more attractive carry and politically neutral destination.
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