Rabobank Sees Real Gains as Short-Lived, Keeps Bearish

Key Moments

Recent FX Performance and Forecast

Rabobank economists Mauricio Une and Renan Alves reported that the Dollar (USD) ended last week at 5.1573 against the Brazilian Real (BRL), with the Real advancing 1.6% over the period. This placed BRL among the strongest performers in a group of 24 emerging-market currencies.

Despite the favorable weekly move, the economists continue to project USD/BRL at 5.55 by the end of 2026. They point to the combination of a still-wide interest-rate differential and a generally softer Dollar globally, while emphasizing that ongoing geopolitical and fiscal risks remain central to their longer-term view.

Rabobank’s Assessment of Recent Real Strength

The economists describe the recent BRL firmness as temporary, despite its strong showing among emerging-market peers. They underscore that structural and risk-related factors still dominate the medium- to long-term outlook for the currency pair.

“The dollar closed last week at 5.1573, implying a 1.6% appreciation of the real against the US dollar over the week (the third-best weekly performance across a basket of 24 emerging-market currencies). Even so, despite the still-wide interest-rate differential and a softer dollar globally, we continue to see USD/BRL at BRL5.55 at end-2026.”

Geopolitical Risks and Oil Market Concerns

Une and Alves stress that geopolitical tensions are intensifying, with the Strait of Hormuz at the center of their concerns. They note that the macroeconomic fallout from higher oil prices is still unclear and that uncertainty over tariffs continues to weigh on the global trade outlook.

“Our view: geopolitical risks continue to intensify, centered on the Strait of Hormuz. The macro consequences of higher oil prices remain uncertain and tariff uncertainty still clouds global trade, against the backdrop of heightened fiscal uncertainty in Brazil’s election year.”

They also point to recent developments on the external front, particularly communications from the US administration, as catalysts for renewed market anxiety and higher energy prices.

“Externally, the US President’s speech dashed hopes of de-escalation: while he pledged to scale back operations in Iran gradually, he also issued fresh threats, reigniting fears of escalation, prompting an Iranian response and pushing oil prices higher.”

Domestic Brazilian Macro Backdrop

On the domestic side, the economists highlight mixed signals from Brazil’s economy. Early in the year, industrial activity showed initial signs of improvement, and the labor market remained solid. At the same time, fiscal performance deteriorated in February, though not enough to shift their broader assessment of the country’s fiscal trajectory.

“Domestically, industrial activity began the year showing tentative signs of recovery; the labour market remained robust; and February’s fiscal outturn was negative, but did not materially alter the view of a fiscal framework that is adjusting only gradually.”

The combination of gradual fiscal adjustment, election-year fiscal uncertainty, and the external risk environment underpins Rabobank’s view that, despite recent Real appreciation, USD/BRL is likely to trade higher by the end of 2026.