Bank of America has taken a fresh stance in the currency markets, favoring the Brazilian real (BRL) over the Mexican peso (MXN) due to higher carry and comparatively attractive valuation metrics.
The bank initiated a long BRL/MXN position at 3.45, aiming for 3.80 while placing a stop-loss at 3.20, according to a research note published Tuesday. This trade provides an annual positive carry of 5.6% and comes with historical volatility around 12%.
Analysts at Bank of America highlighted that carry trades have proven particularly effective in 2024, benefiting from subdued implied volatility across global markets. While both currencies have seen year-to-date gains of over 10%, the bank maintains a more optimistic view on the Brazilian real.
Their research emphasizes that the Brazilian real is currently cheaper than the Mexican peso while also offering stronger carry potential. This combination underpins the bank’s recommendation.
Bank of America also flagged potential risks to the trade, including unexpected hawkish moves by Mexico’s central bank or political developments in Brazil ahead of the 2026 elections, which could affect currency valuations.
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