According to analysts from Danske Bank, the performance of the Brazilian real will mostly depend on president-elect Jair Bolsonaro’s first economic steps.
Key Quotes:
“In Brazil, during the second round of the presidential election held on 28 October 2018, the Social Liberal Party’s (PSL) candidate Jair Bolsonaro gained 55% of the votes versus the Workers’ Party (PT) Fernando Haddad, who gained 45%, thus losing the race.”
“Not only is Bolsonaro’s victory set to cheer the market and BRL, following the Congress election, held on 7 October 2018, more seats were gained by market-friendly forces – the Brazilian Social Democracy Party (PSDB), PSL, the Democrats (DEM), the Popular Socialist Party (PPS) and the Progressive Republican Party (PRP) – in the Senate. At the same time, less market-friendly parties lost seats.”
“The BRL’s upcoming fate will mostly depend on Bolsonaro’s first economic steps, which he is authorised to make starting from 1 January 2019. He is expected to fix the fiscal side by implementing the pension reform, looking at the burden of interest payments on Brazil’s economy and accelerating privatisations. He is also expected to cut taxes – a move that should be monitored closely as it could jeopardise efforts to improve the fiscal side.”
“Rising US Treasury yields and shaky sentiment across emerging markets would put the brakes on BRL’s extra strengthening, while a resumed increase in the crude price would be BRL positive. If Bolsonaro succeeds in pushingthrough reforms in H1 19, we would expect the USD/BRL to fall to 3.55 in in 3M, 3.45 in 6M and 3.40 in 12M.”
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