TD Securities strategists see USD/BRL driven by Brazilian politics and fiscal concerns after Lula’s surprise election win. They expect elevated two-sided volatility around 5.60 in the near term, referencing the 2014 post-election rally and arguing that political uncertainty and fiscal policy worries must ease before the Brazilian Real can stage a sustained recovery.

Election shock drives near-term swings

“USD/BRL sharply rallied after the surprise election win for Lula. The 2014 post-election USD/BRL rally of 11.7% could serve as a point of reference for near-term price action. We expect elevated two-sided volatility around 5.60 in the near-term as Bolsonaro challenging the election result will likely keep political uncertainty high.”

“USD/BRL looks back to 2014. USD/BRL sharply rallied following the surprise election win for Lula over the weekend. While the medium-term macro backdrop remains constructive for BRL given its carry and terms of trade appeals, near-term price dynamics will likely worsen toward 5.60.”

“The 2014 Brazil election could serve as a point of reference for 2026. At the time, investors were also worried about Brazil’s fiscal policy stance after the Dilma Rousseff election win. USD/BRL rallied by 11.7% into year-end before retracing by about 7% at the start of 2015.”

“We expect USD/BRL to trade with elevated two-sided volatility around 5.60 in the near-term.”

“The BRL will likely need to see a similar-sized move into year-end before it stabilizes, in our view.”