Brazilian Real Likely to Fall Sharply After Surprise Election Result — Market Talk

What happened

Luiz Inacio Lula da Silva won Brazil's presidential election run-off on Sunday, ING's Chris Turner said. Opposition candidate Flavio Bolsonaro wants the result annulled after a Supreme Court judge extended polling hours. Turner said the dollar could jump 5%-7% against the real at Monday's open.

Confirmed

Global impact / market context

A weaker real means Brazilian goods cost less abroad but imported items cost more at home, which can lift local prices. For investors, a sharp currency drop can reduce the dollar value of Brazilian assets and make foreign debt repayment harder.

Analyst inference

ING expects the dollar to rise 5%-7% against the real, meaning the real loses value, at Monday's open. Turner said moves could be larger if global conditions worsen and US Treasury yields jump, which means the interest paid on US government debt rises.

Analyst inference

What to watch

1. Watch how quickly Bolsonaro accepts the election results. Turner said his father accepted losing to Lula 44 hours after the 2022 vote, which provided some calm to markets. Confirmed
2. Watch whether the dollar's jump against the real lands at the low or high end of ING's 5%-7% range at Monday's open, and whether it moves beyond that range. Analyst inference
3. Watch US Treasury yields for a jump. Turner said a deteriorating external environment and rising yields could make the real's fall larger than the projected 5%-7% move. Proposed

Evidence

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