The Real DealWhile global markets fixate on AI and the Fed’s next move, a quieter but equally powerful story is unfolding in Brazil. The real is back in the spotlight, underpinned by some of the highest real yields globally, resilient fundamentals, and a shifting trade order that could reshape currency flows in the quarters ahead.
Figure 1: BRLUSD
BRL recently broke above the neckline of a multi-month ascending triangle but has since recovered, trading back within the pattern. A more decisive break above could signal renewed BRL strength. The COVID-19 era saw the BRL fall to historic lows as Brazil faced a fiscal and health crisis, only partially recovering as global liquidity loosened in 2020–2021. More recently, BRLUSD hit record lows again, breaching 0.1600, before stabilizing as the policy backdrop shifted.
Figure 2: BCB’s Rate Hike
Amid resurgent inflation, BRL depreciation, and fiscal expansion, the Central Bank of Brazil (BCB) raised rates aggressively through the second half of 2024, adding 450 basis points in total.
Figure 3: Persistent Inflation
Strong domestic demand, supported by fiscal spending, wage growth, and a tight labor market, reignited inflation in 2024. With the added risk of higher import prices from tariffs, both headline and core inflation remain above the bank’s 3.0% target and the upper tolerance band of 4.5%. In the latest meeting, the BCB maintained its headline inflation forecasts for 2025 and 2026 at 4.8% and 3.6%, respectively.
Figure 4: Modest Growth
Tight monetary conditions have weighed on sentiment. The Business Confidence Index has been trending lower since early 2025, while the Leading Economic Index, which is commonly used to predict future economic turning points, has been negative since May. GDP growth remains resilient for the first half of 2025, but data from the IBC-BR Economic Activity Index, which is widely used as a preview of the GDP figures, suggest moderation is underway.
Figure 5: A Robust Labor Market
With unemployment at a historic low of 5.6%, and strong wage growth, consumer spending remains a key engine of growth. However, rising inflation has eroded purchasing power, limiting real wage gains.
Figure 6: Central Bank Rates
The BCB has stated it will keep the Selic rate at its current restrictive level “for a very long period” to guide inflation back to target and is ready to hike again if needed. This stance has widened interest rate differentials between Brazil and most developed markets. Meanwhile, the Fed’s first rate cut of the year has reinforced this divergence, as it shifts toward balancing labor market risks with persistent inflation while staying data dependent.
Figure 7: Silver Lining in the Current Trade Climate
On April 2, U.S. President Donald Trump declared “Liberation Day” as he announced sweeping tariffs. In August, a 50% tariff was imposed on Brazilian goods (an additional 40% on top of the existing 10%). Despite the apparent threat, Brazil’s trade balance remains in surplus, with exports continuing to grow. Since only 12% of its exports went to the U.S. in 2024, Brazil appears to be relatively insulated from the worst effects.
Recent diplomatic signals between Trump and President Lula have been positive,, while shifting global trade flows present structural opportunities for Brazil. As countries diversify away from the U.S., Brazil has solidified its standing as a key supplier to China and is well-positioned to deepen regional integration and potentially accelerate trade agreements with partners like the European Union.
Putting the Pieces Together
While the market has been focusing on AI-tech, cryptocurrency and precious metals, the high real interest rates, resilient domestic demand, and a shifting trade landscape have brought renewed attention to the BRL. While inflation remains elevated, Brazil’s tight monetary stance makes the currency attractive from a carry perspective, particularly against currencies from easing central banks. At the same time, evolving trade relationships could support structural demand for BRL as exports diversify and deepen. With these forces in play, the BRL stands at the centre of emerging-market FX strategies.
B3 FX Market
Unlike most major currencies, BRL price discovery occurs primarily in B3’s futures market, not the spot market. B3’s dollar futures consistently see some of the highest FX volumes globally, making it the key venue for hedging and speculation.
For Asian participants, however, time zone differences and operational hurdles can limit direct access.
Introducing the BRLUSD Futures on SGX
To address Asian trading frictions, SGX, in collaboration with B3, has launched the BRLUSD futures contract, giving global traders direct access to BRL exposure during Asian market hours. This listing marks an important milestone, complementing B3’s onshore market and extending the BRL liquidity cycle well beyond Latin American and U.S. sessions.
Key advantages of the SGX BRLUSD futures contract:
Asia-hour liquidity: Trade BRLUSD in real time as global macro headlines break overnight. B3’s trading hours overlap with SGX’s night session, further enhancing offshore liquidity.
Hedging flexibility: Particularly useful for global portfolio managers who need to hedge BRL exposure while settling in USD.
Operational simplicity for clients that are already SGX clients.
Cost efficiency comparing to OTC market: Competitive clearing fees and typically tighter bid–ask spreads make execution more efficient.
Cross-margining benefits: Margin offsets are available for inter-commodity spreads, allowing traders to pair BRL with other SGX currency or commodity futures to optimize capital usage.
Putting into Practice
Figure 8: Carry Trade Strategy with BRLUSD
With the Selic rate expected to remain elevated through at least Q1 2026, the wide rate differential between Brazil and major developed markets continues to create opportunities for carry strategies. Fundamentally, the BRL tends to appreciate in a carry environment as demand for BRL-denominated assets rises; driven by investors seeking to capture Brazil’s high interest rates. Moreover, with an already constructive view on the BRL, a carry trade strategy offers a twofold benefit: currency appreciation alongside the positive carry derived from Brazil’s elevated yield advantage. This backdrop supports a long position on BRL.
Since the futures contract listed on SGX is quoted BRLUSD, to express this view, we could directly take a long position in the BRLUSD futures contract (BRLX5) at the current price level of 0.1820. We would set the stop loss at the lower support level of the descending triangle at 0.1790, a hypothetical maximum loss of 0.1820 – 0.1790 = 0.0030 points. While a classic carry trade can simply involve holding the position to benefit from the interest rate differential over time without a predefined take-profit, in this example we set a target at the post-COVID multi-year resistance of 0.2130, for a hypothetical gain of 0.2130 – 0.1820 points.
Furthermore, pairing BRL against low-yielding currencies such as JPY allows traders to capture attractive interest rate differentials while leveraging the inter-commodity margin offsets to enhance capital efficiency. Beyond carry opportunities, portfolio managers in Asia can also use the contract to hedge large BRL exposures, taking advantage of the liquidity outside B3 hours.
Conclusion
With monetary policy set to remain tight, inflation gradually converging, and Brazil carving out a stronger role in global trade, the BRL stands at the intersection of cyclical carry opportunities and structural shifts in capital flows. Whether expressed through directional longs or cross-currency strategies, the BRL offers traders a differentiated play in a market searching for new narratives beyond tech and tariffs.
