Brazil's Real Currency Expected to Trade Relatively Steady

The Brazilian real is anticipated to trade relatively steady in the coming months, constrained by concerns over a deterioration in the country's external accounts, according to a recent Reuters poll. The real has been performing better than expected at the start of 2025, with support from higher local interest rates and a weaker U.S. dollar globally.

External Accounts Concerns Weigh on Real's Value

Investor doubts over Brazil's ability to fund its current account gap have added recently to concerns about the fiscal deficit and how to fix it. The country's external accounts have been a major focus for investors, with many questioning whether Brazil can sustain its imports and maintain a stable currency.

Favorable Interest Rate Spread Supports Real

Despite these concerns, analysts at Itau Unibanco point out that Brazil's favorable interest rate spread is supporting the real's value. Additionally, hopes of progress in trade talks between the United States and China are seen as a positive factor for the currency. However, the bank's economists also note that a potential trade agreement between the U.S. and other countries could limit more positive scenarios for the real.

Challenges for Brazil's Exporters

Brazil's exporters face several challenges, including a decrease in poultry shipments due to an avian influenza outbreak and lower Chinese soybean imports. These factors are expected to weigh on the country's trade balance and potentially impact the value of the real.

Mexican Peso Expected to Weaken

The Mexican peso is expected to depreciate 6% in 12 months, according to the poll. Of the 12 respondents polled, five expect the peso to strengthen, four see risks of weakening, and three are neutral.

Argentina's Currency Expected to Trade Below Official Band

Argentina's currency is expected to trade at 1,440 per dollar in 12 months, just below the upper limit of its official adjustable trading band. The country loosened its capital controls earlier this year, leading to a decline in the peso's value.

Recent Performance of Brazil's Currency

So far this year, the real has gained 9.6%, while the Mexican peso is up 8.3%. Argentina's currency has lost 13% over the same period, less than some feared after the country relaxed its capital controls.

Poll Results

The Reuters poll was conducted between May 30 and June 3, with 27 foreign exchange analysts participating. The median estimate for the real in 12 months is 5.75 per dollar, a loss of only 1.9% from its current value. The latest consensus projection for the end of June at 5.70 per dollar is 4.7% stronger than the 5.97 rate forecast in a January poll.

Conclusion

The Brazilian real's performance will continue to be influenced by external accounts, interest rates, and trade negotiations between major economies. While some analysts see potential for the currency to strengthen further, others believe that risks to estimates remain high due to Brazil's fiscal uncertainties and unfavorable external accounts dynamics. The Mexican peso is expected to weaken in 12 months, while Argentina's currency is anticipated to trade below its official adjustable trading band.

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