Societe Generale highlights that USD/BRL has retreated to 5.07 after threatening 5.20 earlier in July, with the Brazilian Real (BRL) retaining a firm tone following soft United States (US) Producer Price Index (PPI) and lower Treasury yields. A second daily close below the 50-day moving average is seen as opening scope for a move back towards 5.00, helped by stronger retail sales and improving odds of President Lula retaining power.

Real supported by politics and data

"In LatAm, the BRL retains a firm tone after soft US PPI data yesterday deflated Treasury yields and curbed dollar strength. USD/BRL retreated to 5.07 after threatening to take out 5.20 earlier this month."

"The second daily close below the 50dma opens a potential move back towards 5.00, supported by improving odds of President Lula retaining power in the October presidential election. According to the latest Genial/Quaest survey, Lula’s lead over challenger Flavio Bolsonaro has widened to 8ppt (45% vs 37%) in a potential runoff scenario."

"The US share of Brazil’s trade has already fallen to a record low of 9.7% and, with many of the affected goods being essential commodities, the macroeconomic impact is likely to be limited. Politically, however, the tariffs may prove incrementally negative for Bolsonaro, who is generally viewed as being closer to Trump."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)