Brazil’s real fell to the lowest since December 2008 after polls showed President Dilma Rousseff led candidate Aecio Neves three days before the election runoff.
The real declined 0.5 percent to 2.50 per dollar at the close of trade in Sao Paulo after earlier today falling 1.2 percent. The Ibovespa tumbled 3.2 percent, leading losses among major stock benchmarks and erasing this year’s gain.
“Investors are more and more pricing in a victory for Rousseff,” Andre Perfeito, the chief economist at Gradual Investimentos in Sao Paulo, said by telephone. “Many traders are still cautious, but these polls show she is ahead, and people are considering that in trading the currency.”
The currency sank as an Ibope poll showed Rousseff would have 49 percent of voter backing and Neves 41 percent in this weekend’s runoff election while a Datafolha survey indicated that the president had 48 percent support and a lead of six percentage points. Both polls, which previously showed the candidates statistically tied, have a margin of error of plus or minus two percentage points. Neves told reporters he can win despite what the opinion polls say.
The real pared its drop during the last hour of trading. One-month implied volatility on options for the real, reflecting projected shifts in the currency, was the highest among developing countries.
“As the election’s finale approaches, all eyes are on polls and political news,” Solange Srour, the chief economist at ARX Investimentos in Rio de Janeiro, said by telephone. “With the election too close to call, the only certainty is that there will be great volatility today and tomorrow.”
While Neves pledges to slow above-target inflation and revive Latin America’s largest economy, the president says her opponent’s policies threaten improvements she has achieved in the labor force and social welfare.
The real climbed to a two-week high on Oct. 8 as traders speculated that a new government will restore growth after Brazil fell into its first recession since 2009.
The national statistics agency reported today that Brazil’s unemployment rate dropped in September to 4.9 percent, a record low for the month and less than estimates from all except one of 35 economists surveyed by Bloomberg. The government reported this week that annual inflation remained at 6.62 percent in the 12 months through mid-October, faster than than the 6.5 percent upper end of the official preferred range.
Swap rates, a gauge of expectations for changes in local borrowing costs, rose 18 basis points, or 0.18 percentage point, to 12.30 percent today on the contract due in January 2017.
The central bank raised the target lending rate by 3.75 percentage points in the year through April to a two-year high of 11 percent in an effort to curb inflation before holding borrowing costs steady for the past three meetings.
To support the currency, Brazil sold $196.5 million of foreign-exchange swaps today and rolled over contracts worth $392.6 million as part of an intervention program.