Brazilian Real: Election risks then renewed gains – Commerzbank

Commerzbank FX analysts Norman Liebke and Michael Pfister identify the Brazilian Real (BRL) as supported by the Brazilian Central Bank's (BCB) hawkish stance and elevated real interest rates. They anticipate USD/BRL to remain under pressure before the October presidential election, when political risk is factored into market pricing.

However, they predict appreciation of the real once the election concludes, with forecasts of 5.20 by year-end 2026 and 4.80 by end-2027. The BCB's hawkish stance has bolstered the real's performance this year, with market participants now anticipating a benchmark interest rate of around 14% by year-end, matching the current level.

Despite the high interest rate, the BCB has assured the market that there will be only one rate cut this year. The analysts believe the real will likely remain pressured against the US dollar until the October election, and inflation and interest rate trends will regain dominance in BRL performance after the election. Given the BCB's cautious stance, the real is expected to continue appreciating, reaching 5.20 by year-end and 4.80 by the end of 2027.