Brazil’s Real Drop to Five-Year Low as Rousseff Support Climbs

Brazil’s real fell to a five-year low on concern Latin America’s largest economy will struggle to recover as a voter poll showed President Dilma Rousseff winning her re-election bid.

The real declined 0.3 percent to 2.4549 per U.S. dollar at 10:03 a.m. in Sao Paulo, the lowest level on a closing basis since December 2008. The currency declined 9.5 percent in the third quarter, the worst performance among 24 emerging-market currencies after Russia’s ruble.

Rousseff has taken the lead and would win a second term in Brazil’s election this month against former Environment Minister Marina Silva, according to a Datafolha poll released yesterday after markets were closed. Speculation that a new government would revive economic growth and curb inflation helped push the real to a one-month high on Aug. 29.

“The market is gradually pricing a victory for Rousseff, and the real is clearly reflecting that,” Camila Abdelmalack, an economist at CM Capital Markets in Sao Paulo, said in a telephone interview. “We shouldn’t see a reversal of that trend before the end of the elections.”

Rousseff has 49 percent support against 41 percent for Silva in a probable Oct. 26 runoff, according to the Sept. 29-30 survey published yesterday by Folha de S. Paulo newspaper that has a margin of error of plus or minus 2 percentage points.

The swings in the real have heightened as the Oct. 5 vote approaches, with one-month implied volatility on options for the currency increasing to 20 percent, the highest among developing nations. Brazil’s central bank sold $197 million of swaps today as part of its intervention program aimed to support the currency.

Rousseff said yesterday that speculation in the foreign-exchange market is “normal.”

Swap rates, a gauge of expectations for changes in borrowing costs, advanced four basis points, or 0.04 percentage point, to 11.99 percent today on the contract due in January 2016.

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