Over the past month, LATAM currencies have traded mostly sideways, with reduced volatility and without major local catalysts, broadly following external drivers including commodity price fluctuations and global risk appetite. But there's been one clear exception
Shifting electoral dynamics triggered a major rally in the Brazilian real, with a re-pricing of local assets,
Even though a Bolsonaro victory has become the base-case scenario for most investors, we continue to expect his eventual victory, if confirmed, to extend the appreciation trend seen across Brazilian assets in recent weeks.
The USD/BRL may temporarily drop below our year-end forecast of 3.7, possibly touching 3.5, but the extent of the rally should also depend on external drivers, including risk aversion towards emerging-market assets.