Brazil’s Real Leads Latin America Gains as Rousseff Outlook Dims

Brazil’s real climbed the most in Latin America as a poll showed Marina Silva, who pledges to slow inflation and support autonomy for the central bank, would defeat President Dilma Rousseff in an election runoff.

The currency rose 0.6 percent to 2.2471 per dollar at the close of trade in Sao Paulo, the biggest gain among major Latin American currencies tracked by Bloomberg. Swap rates, a gauge of expectations for interest-rate moves, dropped 10 basis points, or 0.10 percentage point, to 11.31 percent on the contract maturing in January 2018.

The real has rallied 5.1 percent this year on speculation Rousseff is losing popularity after overseeing the slowest growth in two decades. The president would garner 36 percent in a runoff vote compared with 45 percent for Silva, a former environment minister, according to an Aug. 23-25 Ibope poll of 2,506 people published yesterday after the close of markets.

“Silva would support inflation control, the floating exchange rate and cut government expending,” Luciano Rostagno, the chief strategist at Banco Mizuho do Brazil in Sao Paulo, said in a telephone interview. “That is positive.”

Standard & Poor’s lowered Brazil by one step on March 24 to the lowest investment grade of BBB-, citing a sluggish economy and Rousseff’s expansionary fiscal policies.

The real extended its gain today after strengthening beyond 2.25 per dollar, encouraging short sellers to buy back the currency to contain losses, said Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil. A short is a bet that an asset will decline.

Stock Rally

He said the real also gained as foreign investors exchanged dollars to buy Brazilian stocks. The Ibovespa rose 2.1 percent to a 19-month high.

“That helps to support the currency too,” he said.

Standard Chartered Plc strengthened its third-quarter forecast for the Brazilian currency to 2.20 per dollar from the previous 2.30.

“We expect a positive market response to a Marina Silva win,” analysts Italo Lombardi and Mike Moran wrote in a research report to clients published today.

Speaking in the campaign’s first televised presidential debate, Silva said last night that “the Brazil that Dilma has just shown, almost in a cinematic way, doesn’t exist in peoples’ lives,” later saying she would tap politicians from opposing parties to help her govern if elected.

‘Lowest Unemployment’

Rousseff said during the debate that Brazil “has the lowest unemployment rates in history, even in the face of the biggest international crisis.”

The Ibope poll showed Silva would run second in the Oct. 5 first round with 29 percent of support versus Rousseff’s 34 percent. Senator Aecio Neves has 19 percent in the survey, which has a margin of error of plus or minus 2 percentage points.

Silva replaced Eduardo Campos as the Brazilian Socialist Party candidate after his death in a plane crash Aug. 13. Her campaign team has pledged to slow annual inflation to 3 percent by the end of 2018 from 6.5 percent last month, support formal autonomy for the central bank and undo fiscal policies that led to the sovereign debt rating downgrade.

To bolster the real and limit import-price increases, Brazil sold $197.5 million of foreign-exchange swaps today and rolled over contracts worth $494.4 million. Finance Minister Guido Mantega said this week in Sao Paulo that the country has maintained a floating exchange rate with “some” intervention.

Before it's here, it's on the Bloomberg Terminal.