Brazil: Rally has room to run - ING

According to Gustavo Rangel, Chief Economist at ING, shifting electoral dynamics triggered a major rally in the Brazilian real, with a re-pricing of local assets, under the assumption that market-friendly candidate Jair Bolsonaro is on his way to becoming Brazil’s next president.

Key Quotes

“Even though a Bolsonaro victory has become the base-case scenario for most investors, we continue to expect his eventual victory, if confirmed, to extend the appreciation trend seen across Brazilian assets in recent weeks.”

“The USD/BRL may temporarily drop below our year-end forecast of 3.7, possibly touching 3.5, but the extent of the rally should also depend on external drivers, including risk aversion towards emerging-market assets.”