AMERICAS · MARKETS
Key Facts
—The call: Morgan Stanley sees mixed pressure on Latin American currencies in the second half of 2026.
—The favorites: The bank keeps a more favorable view on Brazil and Chile than on regional peers.
—The risks: Persistent inflation, high oil prices and political uncertainty are the main headwinds it flags.
—The backdrop: The bank expects a weaker US dollar through mid-2026, then a partial rebound later in the year.
—Latin American impact: Currency moves shape import costs, inflation and returns for anyone invested in the region.
Morgan Stanley expects a mixed second half for Latin American currencies, favoring Brazil and Chile while warning that inflation and oil could pressure the rest, as the dollar charts a choppy path.
The Forecast for Latin American Currencies
Morgan Stanley has laid out its view for Latin American currencies in the rest of 2026. The bank sees a mixed picture rather than a single regional trend. Some currencies look better placed than others.
Its more favorable view falls on Brazil and Chile. Both are seen as better positioned to hold their value against the US dollar. The bank is more cautious on the rest of the region.
The caution rests on three headwinds. Persistent inflation, high oil prices and political uncertainty all weigh on the outlook. Together they could keep pressure on several regional currencies.
The Dollar’s Choppy Path
The forecast sits inside a wider dollar call. Morgan Stanley expects the US dollar to weaken further through the middle of 2026. It then sees a partial rebound in the second half.
The bank’s dollar index path captures the swing. It has the index falling toward the mid-90s around midyear before recovering toward 100 by year-end. The path is tied to US growth and interest-rate expectations.
That matters for the region. A weaker dollar tends to lift emerging-market currencies, while a rebound can reverse the move. The timing of the turn is central to the call.
Why Brazil and Chile Stand Out
Brazil’s appeal rests on its very high interest rates. With the benchmark rate near record levels, its bonds offer some of the best real returns in the emerging world. That draws foreign capital and supports the real.
Chile’s case leans on its external accounts and policy credibility. The bank sees its currency stabilizing after a volatile stretch. A solid rate differential with the United States helps the case.
The broader bull case is real but conditional. In an optimistic scenario, Morgan Stanley has suggested the real could gain sharply if policymakers guard against devaluation. That is an upside case, not a base forecast.
The Risks That Could Bite
Inflation is the first risk. Where price growth stays high, central banks must keep rates elevated, which can slow growth even as it supports the currency. The balance is delicate.
Oil is the second. Elevated crude prices raise import bills for energy-importing economies and feed inflation. They can also lift export earnings for producers, so the effect varies by country.
Politics is the third. A busy regional calendar adds uncertainty, and elections can swing investor sentiment quickly. Markets tend to demand a higher premium when the outlook is unclear.
What It Means for the Region
Currency moves reach far beyond traders. A stronger local currency lowers the cost of imported goods and can ease inflation. A weaker one does the opposite, raising prices for fuel and foreign products.
For investors, the currency often decides the return. Gains on local stocks or bonds can be wiped out, or boosted, when converted back into dollars. That makes these forecasts more than an academic exercise.
As always, a forecast is not a guarantee. Banks revise these calls as data shifts, and the dollar’s path remains uncertain. The value lies in the direction and the reasoning, not in precise targets.
Frequently Asked Questions
What is Morgan Stanley forecasting for the region?
A mixed second half for Latin American currencies, with a more favorable view on Brazil and Chile and more caution elsewhere. It flags persistent inflation, high oil prices and political uncertainty as the main headwinds.
What does it expect from the dollar?
Further weakness through mid-2026, with its dollar index falling toward the mid-90s, then a partial rebound toward 100 by year-end. The path depends on US growth and interest-rate expectations.
Why does it favor Brazil and Chile?
Brazil offers very high interest rates and strong real returns that attract foreign capital. Chile is seen stabilizing after a volatile stretch, helped by its external accounts and a solid rate gap with the United States.
Why do currency moves matter to me?
They shape the cost of imported goods and fuel, which feeds inflation. For investors, currency swings can make or break returns once local gains are converted back into dollars.
Should I rely on this forecast?
Treat it as one informed view, not a guarantee. Banks revise currency calls frequently as data changes, and the dollar’s path is uncertain. The reasoning matters more than the precise targets.
Connected Coverage
For the wider markets picture, see our reports on the global bond selloff and Latin America and Brazil’s inflation topping its target ceiling.
The Rio Times — Latin American financial news — riotimesonline.com
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