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Brazil Real May Face ‘Slow Depreciation,’ Credit Agricole Says

Brazil’s real may be set for a “slow depreciation” as the nation’s presidential election enters a runoff, though “robust” inflows of funds are likely to spur a rebound, according to Credit Agricole CIB.

Dilma Rousseff leads in the race to succeed President Luiz Inacio Lula da Silva with 46.9 percent of the vote after 99.6 percent of the ballots cast were counted. She will face former Sao Paulo State Governor and Health Minister Jose Serra, who had 32.6 percent. Polls had predicted that Rousseff would lead the field and possibly win an outright victory.

“Normally, going into elections, you’d expect a bit more uncertainty but the real’s resilience has continued,” Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole in Hong Kong, said in a telephone interview. “Because there’s a runoff now, that might add a little more uncertainty and keep the real slightly under pressure, at least to a slow depreciation.”

The real weakened 0.1 percent to 1.6897 per dollar on Oct. 1, before yesterday’s election. The decline trimmed the currency’s gains for the week to 1.3 percent, still its best performance since June.

While the currency may show some initial weakness, “positive” foreign investor sentiment and fund inflows may drive “further gains” after the Oct. 31 runoff, according to Kotecha. He predicts the real will strengthen to around 1.67 per dollar over a “few weeks” following the next vote.

“Investment flows are pretty robust and foreign sentiment remains pretty upbeat,” the strategist said. “There may be a slight transition or there’ll be a slight surprise but I don’t see any long-standing impact on the real if we do see the unexpected candidate coming to power.”

Brazil equity funds attracted $348 million in the final week of September, the most in 48 weeks, according to data by EPFR Global.

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