Brazil Real Volatility Falls Below Russian Ruble as Panic Eases

  • Traders expect ruble volatility to be wider in next 3 months
  • Real is the world's worst performing major currency in 2015

Brazil’s real is no longer the world’s most-volatile currency.

As the exchange rate slumped Wednesday, its three-month implied volatility, a measure of expectations for future price shifts, trailed that of Russia’s ruble for the first time in a month. While the gauge has surged 65 percent from this year’s low in January, it has tumbled 22 percent from its Oct. 16 peak.

“It’s hard to say volatility is over, but it’s not as bad as we’ve seen in the past,” Joao Paulo de Gracia Correa, a foreign-exchange manager at SLW Corretora de Valores, said from Curitiba. “There was a moment no one knew what was going on, it was just generalized panic. We still have problems but, for now, we know what’s happening.”

Brazil’s real reversed gains on Wednesday after Federal Reserve policy makers said the economy is still expanding at a “moderate” pace as they left interest rates unchanged.
It dropped 0.5 percent to 3.9061 per dollar in Sao Paulo after strengthening as much as 0.8 percent.

The currency rose earlier Wednesday amid expectations the government’s economic team will be able to pass a bill in Congress aimed at increasing revenue. The real has tumbled 32 percent this year as President Dilma Rousseff struggles to win support for measures to bolster the nation’s finances amid calls for her impeachment.

Lawmakers are expected to a vote on a bill to encourage the repatriation of overseas assets, which could boost government revenue and mark a victory for Rousseff’s administration.

The government will target a so-called primary budget deficit of 51.8 billion reais ($13.3 billion), the Budget and Planning Ministry said Tuesday. States and cities are expected to post a primary surplus of 2.9 billion reais, giving the government as a whole a deficit of 48.9 billion reais, or about 0.85 percent of gross domestic product. Investors and credit-rating companies pay close attention to Brazil’s primary target, which must be approved by Congress.

“The numbers presented by the government could be even worse in the future,” Camila Abdelmalack, an economist at CM Capital Markets, wrote in a report Wednesday.

Swap rates on the contract maturing in January 2017, a gauge of expectations on Brazil’s interest-rate moves, rose 0.16 percentage point to 15.38 percent.

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