The Briefing:
- The USD/BRL exchange rate stood at R$5.0456 on October 14, a 0.37% uptick from the previous session, pulling back from the post-first-round low near R$4.99 reached on October 9.
- The first Quaest poll of Brazil's runoff, released Wednesday, places Flávio Bolsonaro on 46% and President Lula on 44% — a statistical tie eleven days before the October 25 vote.
- Prediction markets on Polymarket give Bolsonaro approximately an 84% chance of winning the runoff, down from 86–87% just days prior, reflecting the tighter polling narrative.
How the Real Got Here
The first-round shock that moved markets more than any analyst predicted
Flávio Bolsonaro won the October 4 first round with 47.03% of valid votes against Lula's 45.16%, defying nearly every polling average. That single result was enough to ignite a sharp currency move: the central bank's official PTAX reference rate dropped 4.6% on the first trading day after the vote, from R$5.2238 on October 2 to R$4.9859 on October 5 — the real's largest single-session gain against the dollar in four years.
The underlying logic is straightforward. Markets read Bolsonaro — a fiscal conservative — as the candidate most likely to tighten spending controls and keep political pressure off Brazil's central bank in its management of the Selic rate. The dollar was traded below R$5.00 for the first time in months and recorded its sharpest weekly fall in four years.
The PTAX rate continued to drift lower through the week, settling at R$4.9892 on October 9 before global headwinds and fresh election uncertainty slowly lifted it back toward R$5.04. Measured in dollar terms, the Ibovespa surged 7.7% in its first post-election session, while the iShares MSCI Brazil ETF — which captures both equity and currency moves for US-based investors — jumped more than 12.5% on that same Monday. Combined with further gains through the week, dollar-denominated returns on Brazilian equities reached roughly 14% across the first five sessions of the runoff campaign.
Why the Dollar Is Rising Again
A tighter race has a price
The real's gains rested on an implicit bet: that the runoff would not be competitive. This week's Quaest survey — 46% for Bolsonaro against 44% for Lula, with a two-point margin of error, based on 2,154 interviews conducted October 10–13 — is the narrowest figure any major polling firm has published since the first round.
The contrast with other institutes is meaningful. Datafolha, released October 8, had Bolsonaro at 49% against Lula's 45%, surveying 2,520 voters in person on October 6 and 7. AtlasIntel, polling 5,026 people between October 3 and 8, showed Bolsonaro at 52.8% against Lula's 47.2% — a gap of nearly 5.6 points. Against those numbers, Quaest's figure introduces real uncertainty, and that uncertainty has a currency price.
Quaest has a track record that traders take seriously. Its tighter reading pushes investors toward the dollar as a hedge against an unsettled outcome. A new Datafolha poll was due Thursday, and markets had already begun adjusting positions in anticipation.
There is also a broader global current applying pressure. Before the first round, the real had weakened toward R$5.23, pulled by a stronger US dollar across emerging-market currencies amid expectations of sustained Federal Reserve tightening and inflationary pressures linked to rising tensions in the Middle East. That pressure never disappeared — it was simply overwhelmed by the first-round result. Now, with the runoff still unresolved and polling diverging sharply between institutes, the global bid for the dollar is reasserting itself at the margin.
Goldman's Scenario Map — and What It Would Take to Get There
The real's next major move depends almost entirely on October 25
Goldman Sachs has outlined a favorable scenario in which USD/BRL could reach 4.50 to 4.80, with reaching 4.80 requiring the complete elimination of the residual fiscal risk premium that built up during the 2024 BRL depreciation episode — a premium Goldman's senior FX strategist Teresa Alves estimates at about 5.3%. The bank's long-run fair-value models also place the exchange rate around 4.80, making that level a convergence point between election optimism and structural valuation.
From R$5.04, reaching 4.80 would represent a further real appreciation of roughly 4.8%. Getting to 4.50 — which Goldman sees as achievable in combination with both a credible domestic fiscal consolidation and a favorable external backdrop for emerging markets — would require a move of approximately 10%.
On the downside, Goldman calculates that if the fiscal risk premium were to rebuild toward December 2024 peaks, the dollar could depreciate around 14% from current levels, placing USD/BRL near R$5.80.
For a more conservative outlook, Commerzbank, in August analysis, forecast USD/BRL at around 5.20 by year-end 2026 in a scenario where political risks subside after the October vote, with the real continuing to appreciate toward 4.80 by the end of 2027 if Brazil's central bank maintains its relatively hawkish stance.
The 2018 playbook, when Jair Bolsonaro won the presidency, offers a historical reference. Goldman draws encouragement from that cycle, in which the real continued appreciating after the first round and reached its strongest point close to the runoff date. The key difference this time around is that the 2018 polling lead was wider and more consistent. The current divergence between Quaest and the other institutes leaves the plausible market range genuinely open.
What Happens If Lula Wins
Analysts have been cautious about the downside scenario, but it exists
Should the result raise sustained uncertainty, the next technical resistance for USD/BRL is R$5.27 on a daily close, with R$5.30 as the subsequent target if that level is cleared. A sharp real reversal would also ripple through the Mexican peso and Chilean peso, both of which have been tracking Brazilian political risk throughout October.
For US investors holding Brazilian equities or exchange-traded funds tied to the Ibovespa, the arithmetic cuts both ways. A weaker real directly erodes dollar-denominated returns even when Brazilian share prices hold firm in local currency terms, because every percentage-point depreciation in the real reduces what US holders actually receive when converting back to dollars.
What to Watch Before October 25
Eleven days remain, and every poll is a market event
The Datafolha survey expected Thursday is the single most closely watched release of the runoff campaign. Datafolha's October 8 figure showed Bolsonaro at 49% and Lula at 45% — if Thursday's edition narrows further toward Quaest's number, the dollar will push higher. If it widens, the real rally has room to resume.
Prediction markets gave Bolsonaro an 84% probability of winning as of early Thursday, down roughly 2 to 3 points from where they traded before the Quaest data landed — a signal that real money moved on the survey. Flávio Bolsonaro leads in nine of the ten runoff polls published since the first round, but the spread between institutes has widened enough to matter. Eleven days remain before Brazilians return to the polls on October 25. The market is listening to every number.
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