The Brazilian real is performing poorly, ING’s FX analyst Chris Turner notes.

Real outlook remains challenging

“China's stimulus measures should have been a positive for the real, but instead USD/BRL is trading up towards the 5.60 area. Despite Brazil receiving a sovereign upgrade from Moodys recently, there are a few factors which could be explaining the real's underperformance.”

“One is the poor performance of President Lula's party in local elections at the weekend, which could prompt the government to spend more ahead of the next presidential election in 2026. Second, 44% of Brazil's government debt is on floating rates and Brazil has the lowest share of long-term fixed debt in the region. Higher US bond yields are therefore a problem for Brazil.”