Societe Generale reports that the Brazilian Real (BRL) has maintained a firm tone, with the USD/BRL exchange rate retreating to 5.07 after previously threatening to surpass 5.20 earlier in July. This movement follows softer United States Producer Price Index (PPI) data, which contributed to lower Treasury yields and a weaker US dollar, thereby supporting the BRL's strength [1].
A notable technical development is the second consecutive daily close of USD/BRL below its 50-day moving average, which Societe Generale interprets as opening the possibility for a further move towards 5.00. This potential appreciation is underpinned by stronger Brazilian retail sales and improving political odds for President Lula in the upcoming October presidential election [1].
According to the latest Genial/Quaest survey cited by Societe Generale, President Lula's lead over challenger Flavio Bolsonaro has widened to 8 percentage points (45% versus 37%) in a potential runoff scenario. This political development is seen as supportive for the BRL, especially as the US share of Brazil’s trade has dropped to a record low of 9.7%. While the macroeconomic impact of this trade shift is expected to be limited due to the essential nature of the affected commodities, Societe Generale notes that the tariffs could be incrementally negative for Bolsonaro, who is generally viewed as being closer to Trump [1].
CONCLUSION
The Brazilian Real has strengthened on the back of favorable US economic data, technical signals, and political developments supporting President Lula. With the USD/BRL now below its 50-day moving average and Lula widening his lead, the outlook for the BRL appears constructive in the near term.