USD/BRL: Real is likely to react very cautiously to Lula’s victory – Commerzbank

In the end, former President Lula only gained a slim majority over incumbent Bolsonaro. The Brazilian real has stood up surprisingly well compared with other Emerging Market currencies this year but economists at Commerzbank believe that BRL has only limited appreciation potential for the time being.

The real is likely to have only limited appreciation potential

“In addition to continued inflation risks one reason why the central bank has not been in a rush with rate cuts is likely to have been the political uncertainty. So far both candidates have only commented about possible fiscal plans in a very vague manner. For that reason, the real is likely to react very cautiously to Lula’s victory.”

“Some fear though that under Lula important fiscal reforms will not be implemented. Until details on that emerge, the real is likely to have only limited appreciation potential.”