Brazilian Real: Disinflation and fiscal risks guide weaker outlook – Rabobank

Rabobank’s Brazil weekly notes that the Brazilian Real (BRL) recently appreciated to BRL 5.0587 per Dollar, ranking among the top emerging-market performers. However, the bank highlights expectations of a narrower interest rate differential versus developed markets in 2026 and a stronger global Dollar, combined with Brazil’s fragile fiscal backdrop in an election year, leading to a projected USD/BRL move back to 5.35 by year-end.

Real seen weakening into year-end

"The Brazilian real ended the previous week at BRL 5.0587 per U.S. dollar, representing a 0.48% appreciation against the dollar during the week, the eighth-best performance among 24 emerging-market currencies."

"Domestically, Brazil’s July IPCA-15 came in below all expectations, while labor market data continue to indicate a tight job market, although the first signs of a slowdown are beginning to emerge."

"June fiscal results showed a larger deficit despite strong revenue growth. In June, the National Treasury reported a Central Government primary deficit of BRL 48.2 billion (market: BRL -48.0 billion; Rabobank: BRL -48.0 billion; May: BRL -53.1 billion)."

"In Brazil, market attention will focus on the Copom interest rate decision on Wednesday."

"Given expectations of a narrower interest rate differential between Brazil and developed markets throughout 2026, together with a potential recovery of the U.S. dollar globally amid a fragile domestic fiscal backdrop in an election year, we expect the exchange rate to return to BRL 5.35 per dollar by year-end."