Societe Generale downgrades Brazil to neutral, citing underpriced fiscal and election risks despite supportive carry trade conditions.
USD/BRL has broken above a descending trend line and is testing its 200-day moving average near 5.22, with potential resistance at the June peak. A break above could target levels of 5.34–5.38 or higher, strategists said.
Brazil’s real has underperformed as political tensions rise ahead of elections, with thin liquidity amplifying volatility. DI rates have climbed across the curve, while the Bovespa index hit a 7-month low of 168k yesterday.
Analysts warn that election and fiscal risks are underpriced, despite favorable carry trade conditions. President Lula’s re-election is seen as the base case, with a 65% probability, but uncertainty persists.