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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.

Goldman Sachs has raised its three and six month USD/BRL exchange rate forecasts, placing election risk ahead of a later high-carry recovery. Goldman Sachs has raised its near-term USD/BRL forecasts as Brazil's election begins to command a larger risk premium.

The bank now projects the US Dollar to Brazilian Real exchange rate at 5.20 in three months, 5.10 in six months and 5.00 in 12 months.

Only the near-term forecasts moved “Our new USD/BRL forecasts are 5.20, 5.10, 5.00 in 3-, 6- and 12-months,” Goldman said.

The previous sequence was 4.90, 5.00 and 5.00, so the bank has raised the three- and six-month figures while leaving the 12-month destination unchanged.

With spot near 5.19 when the note was prepared, the revision chiefly removes the near-term Real appreciation that Goldman had previously expected.

That is not a wholesale bearish turn on the Real.

The revised profile implies modest BRL weakness during the first leg, followed by appreciation as USD/BRL declines from 5.20 to 5.00.

Goldman links the adjustment to the return of political risk as Brazil approaches its election.

The Real could still rally tactically, but the bank expects the exchange rate to respond both to changing probabilities for the candidates and to what each result could mean for the public finances.

“While BRL could tactically rally here, we think it will be difficult for USD/BRL to trade below 5.00, unless there is more clarity on fiscal consolidation post-election,” the report said.

The 5.00 level is both the 12-month destination and the threshold Goldman doubts can break without fiscal consolidation.

The forecast also sits inside a broader low-volatility environment in which carry has been a powerful source of returns.

Goldman expects high-carry currencies to continue outperforming once the immediate political premium fades, which explains why the medium-term trajectory slopes lower even after the near-term forecast revisions.

But the bank is explicit that the election can disrupt that sequence.

“Different election outcomes could push BRL away from this path over the medium-term,” it warned.

Timing defines the call: election uncertainty comes first and carry support later.

A 5.20 three-month forecast is not a call for uninterrupted Dollar strength, and a 5.00 12-month forecast is not a promise that fiscal concerns disappear.

Without clearer fiscal consolidation after the election, Goldman sees little room for USD/BRL to remain below 5.00.

Exchange Rates UK Research Our currency coverage draws on live market data, official economic releases and published bank research.