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Investing.com - Bank of America has initiated a new currency position favoring the Brazilian real over the Mexican peso, citing higher carry and relative valuation advantages.
The bank established a long BRL/MXN position at 3.45, targeting 3.80 with a stop-loss set at 3.20, according to a research note released Tuesday. The trade offers a positive carry of 5.6% annually with historical volatility of approximately 12%.
Bank of America analysts noted that carry has been a particularly effective foreign exchange strategy in 2024, benefiting from lower implied volatility across markets. While both the Brazilian real and Mexican peso are high-carry currencies that have appreciated more than 10% year-to-date, the bank expressed a more constructive outlook on the Brazilian currency.
The research highlighted that the Brazilian real is currently trading at cheaper levels compared to the Mexican peso while simultaneously offering higher carry potential. This combination of factors formed the basis for the bank’s trading recommendation.
Bank of America identified potential risks to the position, including any unexpected hawkish policy shifts from Mexico’s central bank or political developments in Brazil ahead of the country’s 2026 elections that could impact currency valuations.
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