Sep 29 2026 11:50 PM EST

Brazil Real Gains on Selic Cuts and Strong Export Surplus

September 29, 2026

The Brazilian real (BRL) has appreciated 8.4% against the US dollar (USD) over the past three months, trading around 5.12 BRL per USD in September. The principal driver has been the Central Bank of Brazil’s (BCB) ongoing series of Selic rate cuts, which have reinforced expectations of a more accommodative monetary stance.

The most immediate catalyst was the release of September inflation data that showed headline consumer‑price inflation at 4.47 % YoY, better than the prior month’s 4.24 %. The modest rise in the IGP‑M (1.47 % in September) and a 0.1 % increase in monthly consumer prices helped calm inflation‑risk premia, prompting the real to strengthen to the 5.10‑5.15 band despite the ongoing Selic reductions.

Monetary‑Policy Context

Since March 2026 the BCB has cut the Selic by a cumulative 125 bps, moving from 14.75 % to 13.75 % after the September COPOM meeting. The policy rate now sits at 13.75 %, still well above the U.S. policy rate but narrowing the interest‑rate differential that traditionally supports a weaker real. Governor Gabriel Galípolo signalled that further easing will depend on inflation returning to the 3 % target, keeping markets attentive to any deviation.

External‑Sector Fundamentals

Export earnings surged 24.9 % YoY to USD 36.28 bn, driven by a 58.4 % contribution from extractives, 14.7 % from manufacturing and 18.0 % from agriculture. Shipments to China rose 24.4 %, to the EU 43.0 % and to the U.S. 3.7 %. The trade surplus widened to USD 9.8 bn in June, while the current‑account deficit narrowed to USD 8.4 bn in January. Robust foreign‑direct investment inflows of US$ 7.4 bn in August added to a reserve stock of US$ 372.6 bn, providing ample external buffers.

Commodity‑Price and Risk‑Appetite Linkages

Brazil’s currency trajectory mirrors that of other commodity exporters. Global commodity prices have been buoyed by Chinese stimulus – the People’s Bank of China’s continued reserve‑requirement cuts and an announced tax reduction have steepened the Chinese yield curve, supporting demand for oil, iron ore and agricultural products. Because commodity prices are priced in dollars, a rise in global commodity terms tends to lift BRL/USD alongside the ruble and other emerging‑market currencies.

Political and Market‑Sentiment Factors

The approach of Brazil’s October presidential election adds a layer of volatility, but the real has remained resilient, trading within a narrow 5.10‑5.15 band. Analysts note that stronger‑than‑expected inflation data and a solid export backdrop have offset the typical election‑related risk premium. Additionally, easing of U.S.–Iran tensions has supported global risk appetite, further underpinning the real’s appreciation.

Risks to the Upside

Key variables that could reverse the real’s gains include: (1) a resurgence of inflation above the 5 % level, prompting the BCB to pause or reverse rate cuts; (2) any deterioration in commodity prices stemming from a slowdown in Chinese growth or renewed geopolitical shocks; (3) heightened fiscal pressure from the upcoming election, which could force the government to raise spending or cut taxes, narrowing the current‑account surplus; and (4) a strengthening U.S. dollar driven by further Federal Reserve tightening. Market participants will watch the September‑October CPI releases, the next COPOM decision, and the election‑related policy statements for clues on the real’s trajectory.