Brazil's external ballast.
Commodities and reserves against the domestic noise.

Brazil's domestic story is one of fiscal strain and political risk; its external story is the opposite, and the contrast matters. Brazil runs a substantial goods trade surplus driven by agricultural and mineral commodities - soy, iron ore, oil, beef - and a manageable current-account deficit that is comfortably financed by foreign direct investment and the country's high carry. It holds a large stock of foreign-exchange reserves that provide genuine insurance against capital-flow shocks. This external buffer is why Brazil's risk, however acute, is a domestic-political and fiscal risk rather than the external-solvency crisis that has felled other emerging markets.

China is the central external relationship and a structural support. As Brazil's largest trading partner and the dominant buyer of its soy, iron ore and increasingly its oil, China provides a vast and relatively stable source of export demand that is partly insulated from the US-centred trade wars roiling other economies. The relationship is not without risk - it concentrates Brazil's export base in commodities and ties its terms of trade to Chinese growth and the property-led commodity cycle - but in a fragmenting world it gives Brazil a counterweight to US tariff policy that few economies enjoy. Brazil sits relatively comfortably in a multipolar trade system.

Brazil's external fortunes rise and fall with its terms of trade, which are set by global commodity prices. Strong agricultural and metals prices fatten the trade surplus, support the real and cushion the fiscal accounts through export-linked revenues; a commodity downturn does the reverse. The 2026 backdrop is mixed: the Iran war briefly lifted oil, benefiting Brazil as a producer, before the Hormuz reopening reversed it, while agricultural and metals prices track Chinese demand. The external buffer is real but not unconditional - it is strongest when commodities are firm and would thin in a sustained terms-of-trade downturn driven by a Chinese slowdown.

Our base case is external stability: a firm commodity backdrop keeps the trade surplus and reserves intact, the current-account deficit stays financed, and the external buffer continues to insulate the currency from domestic risk. The bull case is a commodity upcycle on resilient Chinese demand that swells the surplus and supports both the real and the fiscal accounts. The bear case is a Chinese slowdown that turns the terms of trade against Brazil, thinning the external buffer just as domestic fiscal-political risk peaks around the election - the scenario in which Brazil's two stories, external and domestic, deteriorate together.