Economists at Credit Suisse restate their 5.00-5.50 USD/BRL target range ahead of the final round of presidential elections on 30 October and preview FX implications of different political outcomes.

A Lula victory can produce some degree of local investor disappointment

“A clear victory by President Bolsonaro is likely to be the most constructive for BRL, consistent with a rapid re-test of the 30 Aug lows in USD/BRL around 5.01.” 

“We suspect that any recently re-emerged fears of postelection turbulence would likely be quickly vanquished in the event of a Bolsonaro victory, adding reasons for BRL strength to local investors’ well-documented preference for the incumbent over the opposition candidate.”

“While a Lula victory can produce some degree of local investor disappointment, we also remain of the view that any ensuing rallies in USD/BRL towards the top end of our 5.00-5.50 target range will rapidly attract sellers – as long as the pre-vote promises by Lula about picking an ‘orthodox’ finance minister are realized.”

“We do not have a strong reason to expect a significantly different cabinet choice in the event of a Lula victory, but if this widely held assumption were to falter, the risk of a deeper correction in BRL past 5.50 would increase sharply.”