The Brazilian real remains the best performing EMFX currency YTD for now. But economists at Rabobank think the USD/BRL will still trade at 5.25 by end-2022 as Fed’s hawkishness and the traditional electoral cycle will end up weighing on the BRL going forward.

After the rally, the BRL unwinds

“We see the USD/BRL trading at 5.25 by end-2022 and the real appreciating to 5.20 in 2023.” 

“The domestic outlook remains challenging due to economic policy uncertainty with the electoral cycle in a global environment of monetary policy tightening with higher risk aversion stemming from a more hawkish Fed, COVID-19 lockdowns in China and the geopolitical landscape. Thus, we see further room for the BRL to depreciate and remain undervalued against its fair value over the coming months.”