Firstly, I want to note that Vargas was no fascist. Like other populist leaders of his time, he definitely might seem like one, but practically speaking, while he was initially allied with some of them, Vargas later crushed all 3 local manifestations of fascism in Brazil: the Integralists, local fascists modelled off of Italian Fascism, the actual local branch of the Nazi party which was incredibly influential, and pro-Mussolini Italian immigrants. He even banned foreign languages in schools specifically because of his incredible suspicion of Italian and German Brazilians related to that. Vargas went through various rhetorical phases, there's this famous cartoon about his dynamism - 1937, Vargas as Hitler, 1941, Vargas as Roosevelt, 1945, Vargas as Lenin. He did try to create a new Brazilian nationalism from scratch, which involved a lot of authoritarian components, but authoritarianism isn't necessarily fascism.

Brazil's stance in WW2 is best understood as an attempt to ensure that Brazil got as much benefit as possible out of the war. From the early to late 30s, Vargas traded freely with the Axis, which was at first only impeded by the British blockade against Germany, but also with the Allies.

The sudden impracticality of shipping to Germany and Italy ensured that Brazil would eventually align itself with the Allies definitively - practical geographic concerns and the USA's regional power made this the only realistic outcome anyway. In 1934, his government comissioned an assessment of the global situation that came to this same conclusion, and this informed their geopolitics from thereon out.

But Vargas was intent on milking them as much as possible before giving his full support.

He considered assistance with funding a new state-owned steel mill and the establishment of a state steel company absolutely essential and tied any wartime pledge of allegiance to the issue. When the USA wasn't budging on the steel mill, Vargas would suddenly begin to incorporate fascist-sounding rhetoric into his speeches with the intent of alarming the American negotiators, making them suspect he was leaning towards the Axis, and forcing faster and broader concessions. By September 1940, the USA, falling for his ruse, had already agreed to fund the steel mill, and Brazil's eventual formal alignment with the Allies was assured.

But he didn't stop there - Vargas made sure to tie supply of wartime goods to further assurances for developmental aid from the USA. Thanks to this, further public companies were created in the mining, fabrication, and chemical industries, while rapid wartime industrial expansion and diversification spurred the country’s industrialisation.

In 1941, Brazil agreed to let the US establish bases and make military use of its airfields while still maintaining official neutrality, and in the January 1942 Pan-American conference in Rio, Brazil was finally convinced to definitively break its economic ties with the Axis, which it had maintained as much as it could (which wasn't much) up until that point.

Funnily enough, despite this, the Nazis somehow still seem to have believed that Vargas was sympathetic towards them, which really shows how well he manipulated both sides.

Quickly though, the situation deteriorated. USA shipping was given free reign over Brazilian waters and the Nazis noticed this. They began to attack Brazilian-flagged ships, first off the coast of the USA, then off the coast of Brazil, with Hitler personally ordering submarine attacks on Brazilian shipping. They effectively considered Brazil to already be an allied nation.

Public opinion quickly became ravenously in favour of Brazil formally joining the war, with street protests against Nazi attacks on Brazilian ships becoming commonplace, and it was finally declared in August 1942.

In summary: Brazil had decided long before the war that in the event of just such a war, it would join up with the USA eventually. But not before manipulating anyone involved for local benefit for as long as it could possibly get away with. Once the steel mill agreement was secured, Brazil established military ties with the USA which angered the Nazis and led to the eventual formal declaration of war, which notably still only happened after Brazilian ships were themselves directly attacked. Vargas also likely saw the war as a useful, uniting event for the budding Brazilian nationalism he was trying to construct, or at least he definitely produced a lot of propaganda that seems like he did.