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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
With the Brazilian presidential election approaching on October 4, tightening polls indicate a potential shift in favor of Flavio Bolsonaro, which could enhance prospects for the Brazilian real (BRL) as investors lean towards Bolsonaro's fiscal policies. Per the full note from ING, Lula's lead has shrunk significantly, with some polls putting it at just 1-2%. This evolving political landscape aligns with market sentiment that favors the BRL’s recent gains, suggesting it may hold steady due to expectations of a rate cut from BACEN amidst these developments.
The narrowing polls in Brazil's upcoming presidential race set the stage for potential volatility in the BRL, with Bolsonaro's rise possibly driving a preference for fiscal restraint. According to ING, foreign investors are responding positively to Bolsonaro's proposals, favoring deregulatory measures and fiscal consolidation over Lula's more expansive social spending plans.
Recent market dynamics show that the BRL is expected to maintain its strength against the USD, with the current spot sitting at 5.1261 BRL. The desk notes the three-month implied yields around 12.3%, indicating a potential for gains as market reactions to the election unfold. A successful shift towards Bolsonaro could see the BRL outperforming forward projections, buoyed by investor confidence in prudent fiscal policies.
The alternative read — should Lula regain momentum — could introduce risk and volatility in the currency, challenging the recent uptrend in the BRL as investors reassess their positions ahead of the election.
Key takeaways
Market implications
Look for USD/BRL to remain influenced by polling developments, especially the swing towards Bolsonaro. A decisive lead could push the BRL lower against the dollar, while volatility surrounding the election could create trading opportunities in the lead-up to October 4.
Risks to this view
A reversal in this call could occur if Lula recovers lost ground in the polls, or if negative headlines regarding his candidacy gain traction, undermining investor confidence in a stable economic policy framework.
Articles Latam FX Talking: Polls tighten in the Brazilian election Published 11:00 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The first round of the Brazilian presidential election takes place in early October. President Lula's lead over Flavio Bolsonaro is crumbling and any further swing towards Bolsonaro could see the real favoured on the prospect of deregulation and fiscal consolidation. Elsewhere, we doubt Mexican peso gains sub-17/USD are sustainable Chris Turner Tighter Brazilian election poll results are lending support to the local currency USD/BRL: Presidential election race tightens Spot One month bias 1M 3M 6M 12M USD/BRL 5.1261 Neutral 5.15 5.15 5.00 4.75 Opinion polls show President Lula’s lead over Flavio Bolsonaro narrowing sharply ahead of the 4 October election.
As always, it is quite personal, with President Lula’s son now seen weighing on his father’s chances, and negative headlines on Supreme Court Justice Alexandre de Moraes. Some polls have Lula’s lead cut to just 1-2%. Foreign investors prefer Bolsonaro’s policies of fiscal restraint and deregulation over Lula’s plans for more social spending.
We expect the BRL to hold onto recent gains and continue to outperform the forwards, where three-month implied yields stand at around 12.3%. The market thinks BACEN can still cut the policy rate another 50bp to 13.50%, but much will depend on the election outcome. Source: Refinitiv, ING Forecasts "> Source: Refinitiv, ING Forecasts USD/MXN: USMCA uncertainty Spot One month bias 1M 3M 6M 12M USD/MXN 16.89 Bullish 17.25 17.25 17.25 17.25 USD/MXN has been flirting with sub-17 levels as low volatility continues to favour the carry trade.
Implied volatility probably has some further way to fall, meaning that the peso’s risk-adjusted carry can nudge a little higher. But we are not comfortable calling a sustained move lower in USD/MXN. The policy spread over the US is very narrow at 275bp and could get narrower if Banxico doesn’t follow a Fed hike.
The macro is less MXN-supportive too. Washington switching to an annual review of the USMCA damages the investment environment. Reports suggest some automakers might move production facilities from Mexico to Vietnam now.
Source: Refinitiv, ING Forecasts "> Source: Refinitiv, ING Forecasts USD/CLP: Copper challenges Spot One month bias 1M 3M 6M 12M USD/CLP 934.58 Mildly Bearish 925.00 925.00 925.00 900.00 The pickup in short-dated US yields has helped USD/CLP move closer to the top of its 910-950 range. Copper prices remain supportive for CLP, generating strong profits for local miner Codelco, but mask local production challenges. Here, Chile’s copper production has fallen 10% YoY, with northern mines hit by bad weather.
A super El Niño later this year may only make matters worse. A low-probability, high-impact, and negative event for copper and the peso is the US tariff story. Copper stockpiles are still being sucked into the US ahead of possible tariffs.
Were tariffs to be avoided, these flows could strongly reverse. CLP is a little more vulnerable now that US rates are higher. Source: Refinitiv, ING Forecasts "> Source: Refinitiv, ING Forecasts FX Talking Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Chris Turner Global Head of Markets and Regional Head of Research for UK & CEE Chris is Global Head of Markets and Regional Head of Research for UK & CEE. Together with his team, he provides short and medium-term FX recommendations for ING's corporate and…
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