Rabobank Sees Real Weakening to 5.35 as Rates Narrow

Key Moments

Policy Moves Pressure the Real

Rabobank analysts Mauricio Une and Renan Alves highlight a divergence in monetary policy between the United States and Brazil. They point out that the Federal Reserve (Fed) increased its benchmark rate by 25 basis points and indicated a more restrictive policy path, while Brazil’s monetary policy committee, Copom, lowered the Selic rate to 13.75%. This combination has contributed to a softer outlook for the Brazilian Real (BRL) against the U.S. Dollar (USD).

Fed Stance and External Backdrop

Assessing the external environment, Une and Alves emphasize the Fed’s focus on containing inflationary pressures:

“Externally, in the United States, the Federal Reserve (Fed) raised interest rates by 25 bps and signaled a more restrictive monetary policy path to contain second-round inflationary effects. However, Rabobank believes that the stagflationary shock makes a single rate hike the more likely outcome, with any additional increase contingent on developments in the Middle East and the resilience of the U.S. economy.”

Recent BRL Performance

The BRL experienced a modest decline against the USD over the previous week, yet still compared favorably with many emerging peers. According to the analysts:

“The Brazilian real closed the previous week at BRL 5.1462 per USD, implying a 0.49% depreciation against the U.S. dollar over the week, ranking as the ninth-best performance among 24 emerging-market currencies.”

Rate Differential and Year-End Forecast

Rabobank’s outlook centers on shrinking rate spreads between Brazil and developed markets, combined with a potentially stronger USD and domestic fiscal challenges. The bank’s projection is summarized as follows:

“Given expectations of a narrower interest rate differential between Brazil and advanced economies throughout 2026, together with a potential global recovery of the U.S. dollar amid a fragile domestic fiscal backdrop in an election year, we expect the exchange rate to end the year at BRL 5.35 per USD.”

On this basis, Rabobank anticipates that the BRL will trade weaker against the USD into year-end, with USD/BRL moving from BRL 5.1462 per USD toward BRL 5.35 per USD.