Goldman Sachs sees Brazilian real gains on election results

Goldman Sachs anticipates the Brazilian real will trade within a range of 4.50 to 4.80 per U.S. dollar following election outcomes seen as favorable for the market and supportive of tighter fiscal policy. In the first round of voting, Senator Flávio Bolsonaro garnered 47.1% of the valid votes, outpacing recent forecasts, while incumbent President Lula received 45.1% of the votes.

Candidates aligned with Bolsonaro and the right-of-center bloc generally surpassed expectations in Senate and gubernatorial contests. The bank indicated that trading at 4.80 would align with the residual fiscal advantage from the 2024 real depreciation episode fully resolving, along with extended valuation prospects. Goldman Sachs suggested the real could rise above these levels if fiscal consolidation initiatives justify a positive fiscal premium and the external environment also proves accommodating.

The investment firm posited that initial round results could furnish significant data to market participants, inciting a substantial foreign exchange market reaction. Goldman Sachs observed that the real's performance leading up to the first round had been more variable than during previous elections, according to their analysis.