Key insights
- Goldman Sachs lowered its USD/BRL forecast, citing Brazil's strong trade terms, risk asset recovery, and high carry. They anticipate continued outperformance if energy prices stay high and risk sentiment remains stable. Higher inflation may lead to a more cautious easing path by the Banco Central do Brasil. Election risks are now seen as more balanced. The impact on US equities is slightly positive due to improved global risk sentiment.
Investing.com - Goldman Sachs lowered its USD/BRL forecast to 4.90 in three months, 5.00 in six months, and 5.00 in 12 months, down from previous forecasts of 5.20, 5.30, and 5.30, respectively.
The Brazilian real has emerged as the best performing currency year-to-date and is among the few crosses trading at stronger levels than before the Iran conflict. Goldman Sachs attributes the real’s outperformance to three factors: the surge in Brazil’s terms of trade over the past couple of months, the recovery in risky assets, and elevated carry matched only by the Colombian peso.
The firm expects the real’s relative outperformance to continue as long as energy prices remain elevated without weakening risk sentiment. Higher inflationary pressures may keep the Banco Central do Brasil on a more cautious easing path, with Goldman Sachs economists now expecting a 25-basis-point cut at next week’s meeting.
Goldman Sachs identifies a reversal of the recent risk recovery as the main near-term risk to real returns. The firm suggests expressing real longs with Chilean peso funding as a more risk-neutral format to add resilience.
The firm expects risks to real spot performance to shift from global to local factors as Brazil’s October presidential election approaches. Goldman Sachs previously argued that election risks were asymmetric toward real appreciation, but now sees risks as more two-sided following the year-to-date rally.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.