The Brazilian real has been an outlier since hostilities erupted in the Middle East, outperforming most emerging-market currencies except the Hungarian forint. Yet according to Robin Brooks, Senior Fellow at the Brookings Institution and former chief FX strategist at Goldman Sachs, the rally is far from over.
Brooks told CryptoComLearn that the real is “horribly beaten down and undervalued” and will ultimately surpass 4.5 reais per dollar — a level he considers the currency’s fair value. He argues that a “perfect storm” of geopolitical drivers is forming.
Two Key Catalysts: Iran War End, Hormuz Strait Uncertainty
First, the U.S. push to end the war with Iran as quickly as possible will lift carry currencies like the Brazilian real. Second, rising uncertainty over the navigability of the Strait of Hormuz benefits Brazil as a commodity and oil exporter, boosting demand for the real.
Brooks draws a parallel to 2022: after Russia invaded Ukraine, Brent crude surged 40% and the Brazilian real rallied 20%. “In 2022, we never quite made it below my fair value of 4.50, but I think that’s now in play. I expect the coming months to see $/BRL finally go below 4.50,” he said.
Not all risks are external. Brazil’s upcoming presidential election — a toss-up between incumbent Luiz Inácio Lula da Silva and Flávio Bolsonaro, son of former president Jair Bolsonaro — could derail the real’s run. Political turbulence remains a wildcard that investors must monitor.