TD Securities says election-cycle risks are weighing on the Brazilian real, keeping USD/BRL under upward pressure after the pair tested its 200-day simple moving average resistance over the past month. The bank points to persistent concerns around Brazil’s fiscal outlook as a key driver, arguing the near-term bias remains for a higher USD/BRL as domestic political headlines stay active.
The firm also observes that USD/BRL price action in 2026 has shown more than 70% correlation with 2014, a period when the pair began rallying in September as fiscal policy worries intensified. TD Securities keeps its USD/BRL forecast at 5.30 for H2 2026 and, on that basis, does not recommend holding BRL for carry at current levels, preferring to wait for more attractive entry points before considering USD/BRL shorts.
Election Uncertainty and Fiscal Risks Cloud The Real
We advise derivative traders to avoid buying the Brazilian Real (BRL) or shorting USD/BRL in the coming weeks. The currency pair has consistently tested its 200-day Simple Moving Average resistance, showing strong upward momentum for the US dollar. With the high-stakes October general elections just weeks away, political uncertainty will keep the pressure on the Real.
We note that USD/BRL price action this year shares a 70% correlation with the volatile 2014 election cycle. During September of that year, worries over loose fiscal policy triggered a major rally for the US dollar against the Real. Today, President Lula’s lead in the polls and his reluctance toward fiscal spending cuts are creating a very similar market reaction.
Defensive Positioning and Cautious Trading Strategy
Our cautious view is backed by rising risks, as Brazil’s gross debt-to-GDP ratio has climbed toward 78.5% this year. Even with the central bank holding the benchmark Selic rate at a high 10.75% to fight inflation, the high yield is not enough to offset the political risks. Consequently, we believe the risk-reward ratio for BRL carry trades is currently highly unfavorable.
We recommend keeping a defensive outlook and maintaining our USD/BRL forecast of 5.30 for the second half of 2026. Derivative traders should wait for better, more overbought levels before executing USD/BRL short positions. Waiting out this pre-election storm will likely offer much safer and more profitable entry points in the near future.
