President Trump stirred volatility for the USD/BRL last Wednesday when he threatened higher tariffs for Brazil as political and trade rhetoric became a focal point and loud.
The USD/BRL closed near the 5.5588 ratio yesterday, which is an accomplishment for the Brazilian Real considering it tested the 5.6000 vicinity a couple of times on Tuesday. Volatility hit the USD/BRL on Wednesday last week. The currency pair had been around the 5.4500 ratio at this time last week before President Trump stirred the tariff cauldron.
The USD/BRL hit a high of nearly 5.6275 on Thursday of last week, but then began to reverse downwards as financial institutions took a deep breath. The past few days of trading have seen a higher near-term range emerge which looks to be around 5.5300 and 5.6000. The U.S White House has set a deadline of August the 1st for tariff negotiations, but President Trump has started to signal out Brazil.
Politics and Public Debate
The USD/BRL has been able to traverse towards the lower part of its near-term range. However, the prospect of swirling political winds may continue to affect the currency pair in the days ahead. President Trump has voiced his displeasure about former Brazil President Jair Bolsonaro’s ongoing prosecution and has threatened a 50% tariff charge.
Brazil’s current President Lula da Silva and his government have said the U.S White House is misguided and wrong about Bolsonaro and tariffs. There are two weeks remaining per the current tariff deadline. The trade agreement between Brazil and the U.S looks to be more about political stakes than commerce, but let’s not forget that Brazil is an important component of BRICS too and this is also seen in a negative manner by President Trump.
USD/BRL Higher Range and Search for Calm
The USD/BRL had been correlating to the broad Forex market remarkably well the past handful of months. The bearish trend in the USD/BRL was noteworthy. The Brazilian Real had been testing lows seen in early October of 2024, when the USD/BRL was near the 5.4100 ratio on the 2nd and 3rd of July.
- The current value of the USD/BRL is certainly higher for the moment, but the currency pair remains under important resistance values technically.
- If the 5.6000 level holds this means financial institutions likely believe some type of better talking points will be found between the Trump administration and Brazil.
- However, the political situation between the two countries could prove to be an interesting testing ground.
- There is a chance that President Trump will choose to make an example of President Lula da Silva and remain aggressive towards Brazil.
- This could mean that financial institutions may stay cautious and keep the current realm between 5.5300 and 5.6000 a holding ground as they look for more clarity and impetus.
- Day traders need to be cautious with the USD/BRL near-term, and likely the next two to three weeks.
Brazilian Real Short Term Outlook:
Current Resistance: 5.5650
Current Support: 5.5510
High Target: 5.6090
Low Target: 5.5270
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