The Brazilian real has embarked on a strong bull run that has pushed it to the highest level since March 2024. The USD/BRL pair has plunged by over 21% from its highest point in December of 2024. So, what next for the Brazilian currency?

Why the Brazilian real has soared

There are a few reasons why the USD/BRL pair has crashed in the past few years. First, this decline is because of the overall US dollar sell-off during the Trump administration. The dollar index has tumbled from last year’s high of $110 to $98 today. 

The greenback has dropped because of Donald Trump’s policies, including his tariffs and hostility towards the Federal Reserve, which has refused to cut interest rates as he expected. As a result, investors have largely moved to other currencies.

Second, the performance mirrors that of other popular emerging market currencies that have soared in this period. For example, the South African rand has soared, with the USD/ZAR falling from 19 last year to 16.5 today. Other EM currencies like the Singapore dollar and Indonesian rupiah have jumped.

Third, Brazil has taken advantage of the ongoing tensions between the US and China. It has placed itself as a top alternative to the US in selling agricultural products to China. It is also a top oil producer that may unlock more barrels as the war continues.

This has been helped by the good weather in the country, which has led to a higher corn, coffee, and soybeans yield. As a result, the recent data showed that its exports jumped by 10% to $31.6 billion in March this year.

Most importantly, the Brazilian real has become a good carry trade opportunity. The Brazilian central bank has maintained high interest rates of 14.75%, which are higher than the US’s 3.75%. This means that it has become profitable to borrow the US dollar and invest in the real.

Looking ahead, the main catalysts for the USD/BRL pair will be the upcoming election that pits President Luiz Inácio Lula da Silva against Flávio Bolsonaro. With months until the October 4 first round, polls show that the race is largely tied.

USD/BRL technical analysis

USDBRL chart | Source: TradingView The three-day chart shows that the USD/BRL exchange rate has crashed in the last two years. It has plunged from a high of 6.3115 in December 2024 to 4.9645. 

The pair has recently dropped below the important support level at 5, confirming that bears are in control. It has moved to the 78.6% Fibonacci Retracement level.

The pair has remained below all moving averages, while the Relative Strength Index (RSI) has slumped. Therefore, the path of the least resistance is where the pair continues falling, potentially to the key support level at 4.50.

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