Brazilian Real: Run-off risks skewed to downside against US Dollar – ING

Chris Turner at ING notes USD/BRL has consolidated around 5.05 after gapping lower to 4.95 on Flavio Bolsonaro’s strong first-round showing. Polls for Sunday’s Lula–Bolsonaro run-off have tightened to roughly 50:50, with Lula’s gains linked to labour law changes. ING sees scope for a dip to 4.85/4.90 if Bolsonaro wins, but a larger upside move if Lula prevails.

Brazil election keeps Real volatile

"Having gapped lower to 4.95 on Flavio Bolsonaro's surprise performance in the first round of Brazil's presidential elections, USD/BRL is now consolidating closer to 5.05. Ahead of Sunday’s decisive run-off between Bolsonaro and incumbent President Lula, opinion polls have tightened considerably, with some now putting the two candidates at 50:50."

"Lula’s improved polling appears to reflect last-minute changes to Brazil’s labour laws, including a Senate-backed reduction of the maximum working week from 44 to 40 hours and the effective abolition of the six-days-on, one-day-off (6x1) schedule."

"This Friday sees a final TV debate between the two candidates. The prevailing market view is that the polls overstate how close the race is and Bolsonaro is likely to pick up the majority of the first-round votes directed outside of the two candidates."

"That could see the USD/BRL gap lower to 4.85/4.90 next Monday morning. However, the bigger move probably comes to the upside should President Lula pull a win out of the bag."

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