Global Foreign Exchange Strategy: Short EURBRL and AUDBRL

Research evidence excerpt

Global Foreign Exchange Strategy: Short EURBRL and AUDBRL

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26 Jun 2026 11:40:27 ET │ 12 pages

Global Foreign Exchange Strategy

Short EURBRL and AUDBRL

CITI'S TAKE

Luis E Costa, CFA AC

We go long BRL against EUR and AUD as the current macroeconomic +44-20-7986-9757

backdrop still suggests resilience for high real-yielding EM. For BRL, tight luis.costa@citi.com

labor markets, strong services inflation, commodity shocks (Iran conflict, El

Nino) and lack of significant fiscal consolidation will likely prompt the BCB Daniel Tobon AC

to stay on hold into elections, maintaining high carry for BRL FX. Strong +1-212-816-8340

growth and a potentially more hawkish Fed reaction function to data still daniel.tobon@citi.com

support the USD, though, making EUR a more attractive funder with a

better carry profile for the trade. AUD provides another avenue for funding Ivan Riveros,CFA AC

that reduces BRL’s sensitivities to terms of trade, broader risk assets and the +1-212-723-0865

USD as AUD has a similar profile, making this more of a pure carry play. ivan.riveros@citi.com

Brian Levine ACBRL — We believe that BCB is poised to tread carefully in the coming months, with a

bias towards unchanged policy rates until the presidential elections (perhaps one +1-212-816-6896

more residual cut). All in all, that reinforces the assumption of maintenance of very brian.levine@citi.com

high carry in BRL FX, while markets have broadly priced in some election premium,

with recent REER underperformance a combination of some terms of trade

retracement but also already pricing in, in our view, higher potential of a Lula victory.

AUD — We opt to hedge USD upside risk by funding the trade not against other

peers. On one hand, we like funding in AUD as: (i) this hedges out macro risks given