StoneX analyst Luca Basson says the Brazilian real lost momentum after a strong start to 2026 because the market shifted back into dollar-defense mode when Middle East tensions escalated. He argues the real still has domestic support from Brazil’s high rates and commodity inflows, but the interest-rate differential is narrowing and geopolitics plus the 2026 election cycle could keep the currency volatile.
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This transcript is a short interview focused on the Brazilian real (BRL) and why it weakened after outperforming early in 2026. The host asks StoneX Brazil market intelligence analyst Luca Basson what changed after the real’s strong start to the year, how much Middle East risk matters, what domestic factors still support BRL, how the Brazil-US rate differential is affecting the outlook, and what the key risks are over the coming months. Basson says 2026 can be split into two FX regimes. In January and February, the real and other currencies benefited from a weaker dollar, uncertainty around US fiscal and trade policy, Brazil’s still-wide rate differential, and stronger-than-usual inflows. In March, that changed when tensions involving Iran, Israel, and the US escalated; markets shifted back into the dollar quickly, and the dollar reasserted itself as the main liquid defensive asset. …
BRL is tactically vulnerable while Middle East risk keeps the dollar bid; any de-escalation could spark a quick relief bounce. For now, the trade is about risk sentiment more than Brazil-specific fundamentals.
Over the next few weeks and months, BRL likely trades with a mild downside bias and higher volatility as Brazil eases and the Fed stays relatively restrictive. The key validation signal is whether global risk aversion eases enough to let the currency recover despite a narrowing rate advantage.
Structurally, the real remains a high-beta carry currency whose fate depends on the balance between domestic yield support and external dollar demand. As long as Brazil is linked to commodity inflows and a credible rate premium, it can outperform in calm markets but remains exposed in global stress regimes.
The Brazilian real’s strong start to 2026 reversed after a regime shift in global FX conditions.
Basson says January-February favored the real, but March brought a sharp change in dollar demand.
Escalation in Middle East tensions pushed markets back into the dollar as a defensive liquidity asset.
He links Iran-Israel-US escalation to quick dollar strength across global markets.
The real behaves like a typical emerging-market currency that weakens when global risk aversion rises.
He explicitly describes BRL as EM-style high beta to risk-off conditions.
What changed after the real’s strong start to 2026 before reversing course in March?
Basson says January-February were supported by a weaker dollar, uncertainty around US fiscal/trade policy, Brazil’s high rate differential, and strong inflows; March reversed when Middle East tensions escalated and the dollar regained defensive status.
How important are global risk sentiment and the Middle East conflict for the real?
He says they are extremely important because BRL is an EM currency that weakens during risk aversion; the conflict boosts demand for dollar liquidity, so the real is being driven more by global defensive positioning than domestic factors.
To what extent can domestic factors still support the real in this environment?
Basson says Brazil still has support from its diplomatic position, distance from the conflict, strong commodity exports, higher oil prices that bring in energy-related flows, and a high interest-rate environment that attracts carry trades.
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