FX.co ★ Brazilian Real Strengthens on Carry Trade

The Brazilian real appreciated to 5.06 per USD in July, its strongest level in seven weeks, supported by renewed carry-trade inflows. Heightened geopolitical tensions—marked by escalating strikes between the US and Iran and US officials downplaying prospects for diplomacy—boosted risk aversion and prompted some emerging-market investors to temporarily reduce dollar exposure.

Brazil’s relatively high real interest rates, maintained by the Central Bank of Brazil as a safeguard against elevated inflation risks and persistent fiscal deficits, have enhanced the appeal of real-denominated assets. Even so, external trade remains a central concern for markets. Investors are closely watching for government initiatives aimed at softening the impact of new US tariffs. Notably, some of Brazil’s key export products—such as beef, coffee, rare earths, energy commodities, aircraft, and aircraft parts—have been excluded from the new 25% tariff.