Brazil’s Real Leads Global Currency Gains as Neves Ahead in Poll

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Brazil’s real led global currency gains after a poll showed candidate Aecio Neves ahead of President Dilma Rousseff, reviving speculation that a new government will restore economic growth.

The real gained 1.1 percent to 2.4739 per U.S. dollar at the close of trade in Sao Paulo, the biggest increase among 31 major counterparts tracked by Bloomberg. The currency pared its weekly decline to 1.6 percent after closing yesterday at its lowest level since December 2008 following Ibope and Datafolha surveys that indicate the incumbent is in the lead.

One-month implied volatility on options for the real, a projection of swings between the currency’s gains and losses, is the highest among developing nations on the last day of trading before the Oct. 26 runoff. The real climbed today as a Sensus poll showed Neves would have 54.6 percent of valid votes compared with 45.4 percent for Rousseff.

“Sensus helped revive hope that Neves still has a chance,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brasil SA in Sao Paulo, said by telephone. “Polls and political news all over the place are driving markets.”

According to the Ibope poll, Rousseff has 49 percent of voter support, compared with 41 percent for Neves. The incumbent has an advantage of 6 percentage points over the opposition candidate in the Datafolha survey, with both polls having a margin of error of plus or minus 2 percentage points.

‘Important Driver’

The real also climbed today as private polls indicate Neves is leading, according to Roberto Padovani, the chief economist at Votorantim Ctvm. “The most important driver today is the private trackings,” he said. “Everybody is seeing Rousseff losing a lot of ground.”

The Sensus survey of 2,000 people published on IstoE magazine’s website has a margin of error of 2.2 percentage points. The pollster also conducts surveys for Neves’s campaign.

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. Rousseff’s administration is struggling to restore growth after Brazil fell into its first recession since 2009 while also combating inflation.

The national statistics agency said this week 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. Annual inflation remained at 6.62 percent in the 12 months through mid-October, faster than the 6.5 percent upper end of the official preferred range, the government reported.

Rate Outlook

Swap rates, a gauge of expectations for changes in local borrowing costs, dropped 14 basis points, or 0.14 percentage point, to 12.16 percent today on the contract due in January 2017. They are up 18 basis points this week.

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 $197.7 million of foreign-exchange swaps today and rolled over contracts worth $392.3 million as part of an intervention program.

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