Brazilian Real: Election Polls and Carry Support the Real – ING

The Brazilian Real is currently caught in a tug-of-war between carry advantages and election risks. USD/BRL is now trading at 5.1626, with market sentiment swinging between a favorable rate differential backdrop and escalating political uncertainty.

**Carry backdrop provides support, but election risks not fully priced**

ING analyst Chris Turner notes that carry trades face a favorable backdrop, providing support for the Real. However, strategists at Societe Generale warn that underpriced election and fiscal risks could weaken the Real. The bank has downgraded Brazil to neutral, noting that USD/BRL has formed higher lows and is testing the 200-day moving average near 5.22. A break above this resistance could see upside targets toward the 5.34-5.38 region.

**Poll data in flux, political tensions rise**

Volatility in poll results has heightened market sensitivity. A poll cited by ING shows President Lula's lead over Flavio Bolsonaro narrowing to one percentage point. Meanwhile, a separate Quaest poll conducted in June shows Lula leading Bolsonaro 44% to 38%, a six-point gap, reversing several months of tied support. The shift among independent voter groups is seen as key to this change.

**Technical picture and fund flows signal caution**

On the technical front, USD/BRL has broken above its downtrend line from December 2024 after rebounding from lows near 5.04. Societe Generale strategists believe that if the pair conquers the 5.22 resistance, it could trigger further upside. In market performance, Brazil's Bovespa index has dipped to 7-month lows, and the DI interest rate curve has risen across the board, reflecting that in a thin liquidity environment, funds may rotate toward other Latin American assets, signaling market wariness of pre-election political tensions.