Brazil’s Real Leads Global Currency Gains as Rollovers Increased

Brazil’s real rose the most among major global currencies as an effort to bolster it overshadowed concern that the nation will struggle to recover from a recession as President Dilma Rousseff picks up support in polls.

The currency strengthened 1.2 percent to 2.3833 per U.S. dollar in Sao Paulo today, the biggest gain among 31 counterparts tracked by Bloomberg. The real has still dropped 6.2 percent in September, which would be the biggest monthly decline since May 2013.

“The real is facing downward pressure even after the swaps rollover reinforcement as Rousseff’s re-election possibility is weighing down the currency,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said by telephone.

One-month implied volatility on options for the real, reflecting projections of price fluctuations, rose to 14.77 percent, the highest level since Nov. 7. To support the currency, the central bank rolled over 15,000 foreign-exchange swap contracts worth $740.4 million, up from 6,000 yesterday. It also sold $197.6 million of the swaps under an intervention program started last year.

The real declined earlier today to a seven-month low as a Vox Populi poll published showed Rousseff would defeat Marina Silva in a probable runoff while other surveys indicated that the race remained too close to call.

Poll Results

The incumbent’s backing in the recent Vox Populi poll increased to 46 percent from 41 percent in the last survey published Sept. 15. Silva’s support fell to 39 percent from 42 percent, according to the poll published yesterday by the R7 website. The Sept. 20-21 poll, which has a margin of error of 2.2 percentage points, surveyed 2,000 people.

Speculation that a new government would revive growth helped to push the real to a one-month high on Aug. 29 as Rousseff struggled with Brazil’s first recession since 2009 and above-target inflation.

Gross domestic product shrank by 0.6 percent in the April-June period from the previous three months after contracting a revised 0.2 percent in the first quarter.

Consumer prices increased 6.62 percent in the 12 months through mid-September, the most since June 2013. The central bank’s preferred range is 4.5 percent plus or minus two percentage points.

Foreign direct investment rose in August to $6.8 billion, the highest since November, the central bank reported today. The deficit in the current account, the broadest measure of trade in goods and services, narrowed to $5.5 billion.

Swap rates, a gauge of expectations for changes in borrowing costs, fell 0.11 percentage point to 11.64 percent on the contract due in January 2016.

The central bank raised the target lending rate by 3.75 percentage points in the year through April to 11 percent before holding it there for the past three meetings.

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