Colombian Peso: Downside risk bias against US Dollar – TD Securities
TD Securities notes that the Colombian Peso (COP) has been a top high-yield performer but sees its supportive mix of tight monetary and loose fiscal policy fading.
Brazilian Real (BRL) faces heightened election-related risks, with the USD/BRL exchange rate testing its 200-day Simple Moving Average (SMA) resistance in the past month. TD Securities, a financial institution, notes that the risks are currently tilted towards a stronger USD/BRL. The bank has maintained its forecast of 5.30 USD/BRL for the second half of 2026 and suggests waiting for more favorable levels before considering BRL carry positions or USD/BRL shorts.
In 2026, the correlation between USD/BRL price actions and the 2014 situation has been over 70%. In the 2014 case, the USD/BRL started to rise in September when people grew concerned about Dilma Rousseff's fiscal policies. Lula, who is currently leading in most polls, has expressed dissatisfaction with fiscal consolidation, which could further pressure the BRL in the coming month.
Therefore, TD Securities does not recommend owning BRL for carry in the near term and has kept the USD/BRL forecast for H2 2026 at 5.30. The bank expects USD/BRL to present a more appealing entry point for short positions in the coming months rather than at the current level.
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