Brazil’s Real Rises on Speculation Fed Won’t Rush to Raise Rates

Brazil’s real gained for a fourth straight day after the publication of Federal Reserve minutes added to speculation that U.S. policy makers won’t be in a hurry to raise interest rates.

The currency climbed 0.8 percent to 2.3774 per dollar at the close of trade in Sao Paulo after falling 1.4 percent earlier today. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, rose five basis points, or 0.05 percentage point, to 11.83 percent on the contract due in January 2016.

The real erased its decline as minutes published today show Fed policy makers said at their Sept. 16-17 meeting that a global slowdown and a stronger dollar posed potential risks to the U.S. economic outlook. Projected swings between the Brazilian currency’s gains and losses mounted before the Oct. 26 election runoff, with one-month implied volatility on options for the real increasing today to 22 percent, the highest among developing nations.

“The real is all over the place,” Win Thin, the global head of emerging-market strategy at Brown Brothers Harriman & Co. in New York, said by phone. “There is the whole election drama, and there is the Fed, the 800-pound gorilla.”

The currency rallied at the opening of trading on speculation faster inflation will dim President Dilma Rousseff’s prospects in the runoff. The real then dropped as Chicago Fed President Charles Evans said the U.S. central bank will raise rates sooner if inflation accelerates.

Brazil’s consumer prices increased 6.75 percent in the 12 months through September, the fastest pace since October 2011, the national statistics agency reported. The official target is 4.5 percent plus or minus 2 percentage points.

Vote Tally

In the Oct. 5 election, Rousseff had 42 percent of the vote, followed by Aecio Neves with 34 percent and Marina Silva 21 percent. Neves received more backing than the 26 percent support he garnered in a Datafolha poll published Oct. 4. New surveys by Ibope and Datafolha may be published tomorrow.

Brazil’s credit standing “will depend not on who is elected as president, but on how successful the policies of the next government are in reversing the deterioration that has been observed in economic, fiscal and debt metrics,” Moody’s Investors Service said in a report.

Last month Moody’s changed the outlook on the Latin American nation’s Baa2 rating, the second-lowest level of investment grade, to negative after Standard & Poor’s lowered Brazil in March to one level above junk.

To support the currency, Brazil sold today $197.6 million of foreign-exchange swaps as part of an intervention program and rolled over contracts worth $393.9 million.

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