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Brazilian Real gains against the US Dollar put USD/BRL near 5.00, with Goldman's 4.50-4.80 scenario dependent on tighter fiscal policy. The Brazilian Real surged after the first round of Brazil's presidential election, bringing Goldman Sachs' favourable fiscal scenario closer as investors looked ahead to the 25 October runoff.The US Dollar to Brazilian Real exchange rate fell to 4.9992 on Monday from Sunday's quoted 5.2261, a decline of 4.34%.
A lower USD/BRL rate means a stronger Real, as fewer Reais are needed to buy one Dollar.
With 99.99% of ballot boxes counted, Flávio Bolsonaro led with 47.03% of valid votes against President Luiz Inácio Lula da Silva's 45.16%.
Neither secured the majority needed to avoid a second round.
Goldman says Bolsonaro outperformed polling expectations, while pro-Bolsonaro and right-of-centre candidates also exceeded expectations in Senate and gubernatorial races.
Image: USD to BRL exchange rate crashes on latest Brazilian election news What would take USD/BRL towards 4.80? Goldman sees room for further Real appreciation, but its range depends on the policy implications of the eventual result.
"More broadly, we see 4.50-4.80 as a plausible range for USD/BRL under an election outcome that is perceived as market-friendly and conducive to a tighter fiscal stance."
This is a conditional valuation scenario, not an unconditional base forecast or a target for runoff day.
From Monday's rate, reaching 4.80 would require USD/BRL to fall approximately another 4%, while 4.50 would imply a decline of roughly 10%.
The upper end of that range has a specific rationale:
"In particular, trading at 4.80 would be consistent with the 'residual' fiscal premium from the 2024 BRL depreciation episode fully compressing as well as longer-run valuations."
In practical terms, investors would remove the remaining discount applied to the Real because of concerns about Brazil's public finances, a distinction explored in our earlier coverage of Goldman's election scenarios.
Policy commitments become the next test Goldman draws encouragement from 2018, when the Real continued appreciating after the first round and reached its strongest level just before the runoff.
But the bank expects attention to turn increasingly towards the feasibility of reform.
"Governability concerns may be less acute this time around, but given the highly challenging fiscal backdrop we still expect policy announcements to gain greater importance as we get closer to and through the second round."
It will watch how supporters of eliminated candidates redistribute their votes, alongside policy commitments and personnel announcements from both contenders.
Stronger gains would require more than an initial favourable market reaction:
"The Real could appreciate beyond these levels if fiscal consolidation efforts justify a 'positive' fiscal premium and if the external backdrop is also supportive for BRL."
Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.