Bank of America has opened a short on EUR/BRL at 5.80, arguing that the Brazilian real is supported by stronger external conditions and more attractive real interest rates. The bank points to a commodity-driven terms of trade shock that has materially strengthened Brazil's position relative to many peers in emerging markets.
Commodity price gains - notably in oil and agricultural products - have flowed through to export receipts. According to the bank, dollar-denominated exports are currently running 10-20% ahead of last year, a performance that underpins a projected improvement in Brazil's external balance. Bank of America estimates the external balance will be about $11 billion stronger in 2026.
The central bank's deliberate policy approach has resulted in nominal rates rising faster than inflation, boosting real carry in the economy. The bank highlights that Brazil now displays one of the highest and fastest-rising forward real rates among emerging markets, a dynamic that increases the return advantage of holding local assets when measured in real terms.
On the political front, the 2026 election appears to be becoming more competitive. The opposition has been gaining ground amid weak consumer confidence and a more conservative-leaning Congress, factors that introduce political uncertainty even as macro indicators trend in favor of a stronger currency.
Bank of America notes that despite a recent 13% rally, the real still looks undervalued by roughly 7% on a real trade-weighted basis. External accounts are posting stronger-than-average surpluses while the economy runs above potential, characterized by tight labor markets and persistent inflation. The bank's analysis concludes that a stronger real would be consistent with these macro conditions.
Overall, Bank of America frames its EUR/BRL short as driven by improving trade dynamics, heightened real yields, and an economic backdrop that would support currency appreciation, even in the context of an evolving political landscape ahead of the 2026 vote.