Brazil’s real led world currency advances and pared a weekly drop on wagers President Dilma Rousseff won’t win re-election in a first-round vote as the nation contends with a recession and above-target inflation.
The real climbed 1.5 percent to 2.4584 per U.S. dollar at the close of trade in Sao Paulo, the biggest advance among 31 major currencies tracked by Bloomberg. It dropped earlier today for the first time since 2008 to a level weaker than 2.5 per dollar and was still down 1.6 percent for the week, marking the fith weekly decline.
The currency’s projected swings between gains and losses have heightened as the weekend vote approaches, with one-month implied volatility on options for the real increasing to almost 18 percent, the highest among developing nations. Speculation that a new government would revive economic growth and curb inflation helped to push the real to a one-month high in August.
“Volatility has been very high over the past few days,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio, said in a telephone interview from Curitiba, Brazil. “Nobody knows what the outcome will be.”
Rousseff will garner 40 percent of support in the first round of votes on Oct. 5, followed by 24 percent for Marina Silva and 19 percent for Aecio Neves, according to an Ibope poll of 3,010 published yesterday. The leading candidate needs more than 50 percent of valid votes, or more than all other candidates combined, to win the election and avoid a second round against the runner-up Oct. 26.
The president would beat either challenger in a runoff, according to the Ibope poll Sept. 29-Oct. 1, which has a margin of error of plus or minus two percentage points.
The real also gained as Veja magazine said an upcoming article would provide “definitive proof” of corruption at state-controlled oil company Petroleo Brasileiro SA. The report may hurt Rousseff’s popularity, Paulo Petrassi, a fixed-income manager at Leme Investimentos Ltda. in Florianopolis, Brazil, said in a phone interview.
To support the currency, Brazil sold today $196.9 million of foreign-exchange swaps as part of its intervention program and rolled over contracts worth $392.8 million.
HSBC Holdings Plc projected this week in a research report to clients that the real will weaken to 2.6 per U.S. dollar “as soon as end-2014 if the sentiment of our post-election scenario of ‘no policy change’ prevails.”
Standard & Poor’s lowered Brazil’s credit rating in March to one level above junk, citing a slowdown in economic growth and what it said was a deterioration in fiscal accounts. Moody’s Investors Service changed the outlook on the country’s rating from stable to negative last month.
The Treasury said this week that the central government’s primary deficit, excluding interest payments, widened in August to 10.4 billion reais while the median forecast of analysts surveyed by Bloomberg was for a balanced budget.
Swap rates, a gauge of expectations for changes in borrowing costs, dropped 12 basis points, or 0.12 percentage point, to 11.91 percent today on the contract due in January 2016. They’re up 24 basis points since Sept. 26.
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.