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Brazilian real lags as elections and equity downgrade weigh

ING’s Chris Turner said BRL looks unlikely to break 5.22 on local news alone, supported by 13.4% implied one month yields and Brazil’s net energy exporter status.

Reported · Written up by our desk · EM Currencies

The Brazilian real underperformed in an otherwise supportive environment for FX carry trades, ING’s Chris Turner said, after a sell side bank downgraded Brazilian equities and a new poll showed President Lula widening his lead ahead of the October election.

Turner called the move potentially the first “real political hit” to BRL this year, with the election backdrop starting to weigh more directly on the currency.

Despite that pressure, ING expects demand to remain supported by high implied yields, citing 13.4% through one month non deliverable forwards, and by Brazil’s position as a net energy exporter.

ING also expects USD/BRL to stay capped, saying the pair is unlikely to break 5.22 on local news alone, even as politics begins to bite.

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