Brazil's Real Volatility Falls Amid Impeachment Speculation

  • Implied volatility was still the highest among major tenders
  • Members of coalition party looking at new impeachment: Folha

Volatility on Brazil’s declined declined amid speculation that support for the impeachment of President Dilma Rousseff is growing.

One-month implied volatility fell 1.1 percentage point to 18.9 percent, the lowest since Feb. 3. It remains the highest among major currencies. The real was little changed at 3.9565 per dollar after earlier advancing as much as 0.9 percent.

Some members of the PMDB party, which is part of the government’s coalition but has wavered in its support over the past year, are looking into new impeachment proceedings against Rousseff based on the latest developments in a two-year corruption investigation at state-run oil company Petroleo Brasileiro SA, according to Folha de S. Paulo. PMDB has enough votes in Congress to be a decisive force on key issues such as impeachment and economic measures.

"The more vulnerable the government gets, the better Brazilian assets react," said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores, in Curitiba, Brazil.

Joao Santana, the strategist behind Rousseff’s electoral victories in 2010 and 2014, was arrested Tuesday as part of the Carwash operation. Santana and his wife are accused of using foreign bank accounts to receive illicit funds from offshore companies controlled by Odebrecht, one of the largest Brazilian builders. Santana’s wife confirmed on Wednesday having received money from Odebrecht abroad and this money is allegedly tied to the government’s campaign debts, also according to Folha.

Telephone calls and and an e-mail to Santana and his wife’s lawyer, Fabio Tofic Simantob, were not responded.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.045 percentage to 14.215 percent.

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