Brazilian Real: Election risks keep pressure on BRL against US Dollar – TD Securities

TD Securities highlights that BRL faces elevated election-related risks, with USD/BRL having tested its 200-day SMA resistance over the past month. Drawing parallels with 2014, the bank sees risks skewed toward higher USD/BRL as markets remain concerned about Brazil’s fiscal outlook. TD maintains its 5.30 USD/BRL forecast for H2 2026 and prefers to wait for better levels before considering BRL carry positions or USD/BRL shorts.

Election cycle weighs on BRL carry

"USD/BRL has already been testing the 200d SMA trendline resistance over the past month."

"Risk is skewed toward higher USD/BRL in the near-term as domestic election headline risks stay elevated."

"USD/BRL price actions in 2026 so far have had more than 70% correlation with 2014."

"In the 2014 analog, USD/BRL started to rally in September as market became concerned with Dilma Rousseff's fiscal policy stance."

"In 2026, Lula continues to lead in most polls and his distaste for fiscal consolidation may end up pressuring BRL more in the coming month. As a result, we would not advocate owning BRL for carry in the near-term and maintain 5.30 as our USD/BRL forecast for H2 '26. USD/BRL will likely present more attractive entry level for shorts in the coming months than now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)