Brazilian Real Extends Rally as Dollar Falls for Third Consecutive Day – March 15, 2025

The Brazilian real is trading at R$ 5.74 per US dollar as of this morning, maintaining the strength demonstrated at yesterday’s close.

Friday’s session ended with the dollar retreating 0.98% to R$ 5.7433, marking the third consecutive day of decline against the Brazilian currency.

On a weekly basis, the greenback lost 0.81% against the real, reflecting improved sentiment toward emerging market currencies.

The dollar weakened against the real yesterday amid rising risk appetite globally, primarily driven by expectations of new economic stimulus measures in China.

The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, fell 0.12% to 103.704 points by late Friday afternoon.

Domestic Fiscal Factors

Market participants reacted positively to unexpected improvements in Brazil’s public debt figures. According to Central Bank data, Brazil’s gross public debt as a percentage of GDP decreased to 75.3% in January, below the previous month’s 76.1% and economists’ forecasts of 76.2%.

“The surprisingly positive debt numbers are giving investors more confidence in Brazil’s fiscal trajectory, providing substantial support for the real,” said Carlos Monteiro, chief economist at Banco Itaú. “This creates a more favorable backdrop for the Central Bank’s inflation-fighting efforts.”

The record primary surplus of R$ 104.096 billion ($17.35 billion) in January also contributed to improved sentiment toward Brazilian assets. This fiscal outperformance exceeded market expectations of R$ 102.135 billion ($17.02 billion).

Trading Volumes and Flows

Trading volumes remained robust throughout Friday’s session, with approximately $8.2 billion in spot market transactions. Foreign exchange-traded funds tracking the Brazilian real saw modest inflows of approximately $45 million over the past week, according to market data providers.

“We’re seeing renewed interest from international investors in Brazilian assets, particularly following the positive fiscal data,” noted Marina Silva, FX strategist at XP Investimentos. “The currency market has been responding to improved fundamentals rather than short-term speculative flows.”

Technical Analysis

From a technical perspective, the USD/BRL pair has broken below the important support level of R$ 5.80, which now becomes resistance.

The currency pair is trading near the lower end of its 2025 range, with the year’s low point of R$ 5.6892 (recorded on February 18) representing the next significant support level.

“The technical picture has turned decidedly bearish for the dollar against the real,” said Rafael Campos, technical analyst at BTG Pactual.

“With three consecutive days of decline and a clean break below R$ 5.80, we could see further dollar weakness toward the R$ 5.65 level if current momentum continues.”

External Factors and Commodities

The Brazilian real has gained support from the positive performance of commodities, with iron ore and Brent crude oil prices advancing more than 1% on Friday amid expectations of Chinese stimulus measures. As a major commodity exporter, Brazil tends to benefit from rising commodity prices.

“The anticipated stimulus package from China is providing significant tailwinds for commodity currencies like the real,” explained João Fernandes, chief market strategist at Bradesco.

“With iron ore and agricultural exports being key components of Brazil’s trade balance, the improved outlook for commodities is translating directly into real strength.”

Federal Reserve and US Political Developments

In the United States, investors are awaiting the Federal Reserve’s policy meeting next week, with expectations that interest rates will remain unchanged in the 4.25% to 4.50% range. Recent weaker-than-expected US inflation data has supported this view.

Additionally, political developments in Washington saw progress on avoiding a government shutdown, with Senate Minority Leader Chuck Schumer indicating support for a Republican measure to fund the government through September.

Outlook and Expectations

Analysts remain cautiously optimistic about the real’s near-term prospects. BNP Paribas Wealth Management has maintained its 3-month target for USD/BRL at 5.80 but revised its 12-month target to 6.00, suggesting potential longer-term pressures on the Brazilian currency.

“While we’ve seen significant strength in the real recently, fiscal uncertainties surrounding the 2025 budget could introduce volatility in coming weeks,” cautioned Ana Botín, emerging markets analyst at Santander.

“The postponement of the budget vote to April creates a longer window of uncertainty that could temporarily weigh on the currency.”

The Brazilian Congress’s decision to delay the vote on the 2025 budget until April, alongside discussions about a R$ 7.7 billion ($1.28 billion) reduction in the Bolsa Família program, will remain key factors for market participants to monitor in the coming weeks.

Brazilian Real Extends Rally as Dollar Falls for Third Consecutive Day – March 15, 2025

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