Brazilian Real: Rate gap points to weakness against US Dollar – Rabobank

In a recent analysis, Rabobank's Mauricio Une and Renan Alves pointed out that the Brazilian Real (BRL) experienced a 1.26% appreciation against the U.S. Dollar over the past week, with the exchange rate settling at around 5.13. Despite this short-term gain, the bank forecasts the USD/BRL rate to reach 5.35 by the end of 2026, surpassing market consensus.

Several risk factors were highlighted, including narrower interest-rate differentials between Brazil and other advanced economies, as well as fiscal concerns domestically. The U.S. dollar depreciated by 0.5% against its G10 peers over the same period, as indicated by the DXY Index (September 4, 2026: 99.157). Meanwhile, the MSCI EMFX Index of emerging-market currencies rose to 1,937 points (+0.6%).

Positive economic data from the United States, such as a stronger-than-expected job creation in August and a stable unemployment rate, reinforced the perception of a resilient American economy. However, Brazil's GDP growth slowed to 0.5% quarter-over-quarter in the second quarter of 2026, outpacing expectations. The expansion was primarily driven by agriculture and the extractive industry, while household consumption, manufacturing, construction, and exports showed signs of contraction or stagnation.

A potential decline in carry trade inflows throughout 2026 poses a significant risk for the Brazilian real. The currency remains heavily affected by both global uncertainties, such as reduced prospects for U.S. rate cuts, concerns over economic slowdown in the U.S. and China, geopolitical risks, and the potential for additional monetary tightening in Japan. Concurrently, Brazil's domestic challenges, including persistent doubts about the sustainability of its fiscal framework, further complicate the outlook.