Brazil’s Real Declines to Two-Week Low After Voter Poll Results

Brazil’s real fell to a two-week low after voter poll results damped the prospect of a new government reviving the nation’s economy and as concern that global growth is slowing sank demand for risk.

The real dropped 0.6 percent to 2.4727 per dollar at the close of trade in Sao Paulo, paring its decline as a Federal Reserve official said the U.S. central bank should consider delaying the end of its bond-purchase program. Earlier today, Brazil’s currency slid 1.9 percent toward the the five-year intraday low.

Projected swings between currency gains and losses have heightened as the Oct. 26 presidential election runoff approaches, with one-month implied volatility on options for the real increasing to a three-year high. Polls published yesterday after markets were closed showed opposition candidate Aecio Neves and President Dilma Rousseff are statistically tied after another survey showed him in the lead.

“There is a broad risk-off mood globally, and the real is being affected by that,” Juliano Ferreira, a strategy analyst at Icap do Brasil in Sao Paulo, said in a telephone interview. “The bad mood among investors combines with worse prospects for Neves in the race.”

A Datafolha poll of 9,081 people taken Oct. 14-15 and the Ibope survey of 3,010 conducted Oct. 12-14 both indicated that Neves has 45 percent support before the runoff, compared with 43 percent for Rousseff. The difference is within both polls’ margin of error of plus or minus two percentage points. A Sensus poll published Oct. 11 showed Neves with 52.4 percent support compared with 36.7 percent for Rousseff.

Rousseff Campaign

The Datafolha survey showed that rejection of Neves increased to 38 percent from 34 percent last week, signaling that attacks made by Rousseff’s campaign are effective, according to a report from consulting firm Arko Advice.

The incumbent is seeking a second four-year term as the nation struggles to recover from its first recession since 2009 and above-target inflation.

The central bank reported today that growth in Brazil’s economic activity, a proxy for gross domestic product, slowed to 0.27 percent in August from the prior 1.52 percent.

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

Swap rates, a gauge of expectations for changes in local borrowing costs, increased eight basis points, or 0.08 percentage point, to 12.03 percent on the contract due in January 2016.

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.

In the U.S., St. Louis Fed President James Bullard suggested as policy makers prepared to meet later this month that the central bank should consider extending asset purchases. U.S. stocks rose on wagers that the Fed will act to insulate the world’s largest economy from global weakness.

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