Brazil’s Real Leads Emerging-Market Declines on Election Outlook

Brazil’s real fell the most in emerging markets on concern the economy will struggle to recover as polls show more support for President Dilma Rousseff amid speculation the U.S. will start raising interest rates.

The real dropped 1.8 percent to 2.4278 per U.S. dollar at the close of trade in Sao Paulo, the worst performance among 24 developing-nation currencies tracked by Bloomberg. It extended its decline this month to 7.9 percent, which would be the biggest loss since September 2011.

“The market doesn’t like to see Rousseff rising in polls, and beside that there is broad concern about rates being raised in the U.S.,” Reginaldo Siaca, a foreign-exchange manager at Advanced Corretora de Cambio in Sao Paulo, said by phone.

The real’s swings between gains and losses have heightened as the Oct. 5 election approaches. One-month implied volatility on options for the real, reflecting projected fluctuations, rose for a fifth straight day and climbed to 15.06 percent, the highest level in a year. There is no foreign-exchange crisis, Rousseff told reporters in Feira de Santana, Brazil.

Brazilian President Dilma Rousseff lost her lead over former Environment Minister Marina Silva in a likely runoff vote, according to a Vox Populi poll published today. Rousseff garnered 42 percent in a likely Oct. 26 runoff vote, down from 46 percent in a Sept. 20-21 Vox Populi survey. Silva drew the support of 41 percent, up from 39 percent. The Sept. 23-24 survey published in the online edition of Carta Capital magazine polled 2,000 people and has a margin of error of 2.2 percentage points.

A Datafolha poll could come out tomorrow.

Swap Rollovers

The real rose yesterday as Brazil increased currency swap contracts offered in rollover auctions supporting the real to 15,000 from 6,000. The central bank sold $198.2 million of the swaps today as part of an intervention begun last year and extended the maturity of contracts worth $739 million.

Some investors are speculating that the increase in the rollover auction announced Sept. 23 may not be sufficient to support the currency, Siaca said.

Swap rates, a gauge of expectations for changes in borrowing costs, rose 14 basis points, or 0.14 percentage point, to 11.95 percent on the contract due in January 2017.

While the government reported today that the unemployment rate in August was at a record low 5 percent for the month, it was higher than the 4.9 percent median forecast of economists surveyed by Bloomberg. Today marked the first release of full jobless data in four months because of a strike at the national statistics agency.

Brazil Policy

To curb accelerating inflation, the central bank raised the target lending rate by 3.75 percentage points to 11 percent in the year through April before holding it at that level for the past three meetings.

Brazil’s currency declined today along with most emerging-market currencies on Federal Reserve prospects before data tomorrow forecast to show U.S. growth quickened and consumer confidence improved.

Siaca said the real also fell as Russian lawmakers drafted a bill on the seizing of foreign assets in response to sanctions from the European Union and the U.S., sinking risk demand.

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