Brazil Real Rises as Investors Watch For Signs of Temer Support

  • Chamber decides this week whether to put Rousseff on trial
  • Lower house scheduled to vote on new states debt bill Tuesday

Brazil’s real advanced as lawmakers prepared to vote on whether to move forward with the impeachment of President Dilma Rousseff, a target of investor wrath as she oversaw the country’s descent into its worst recession in a century.

The currency rose 0.2 percent to 3.1668 per dollar at 10:10 a.m. in Sao Paulo, extending this year’s best-in-the-world advance to 25 percent. 

The senate vote comes just days after a magazine report said Rousseff’s temporary replacement as acting president, Michel Temer, and two of his cabinet members were accused of receiving illegal campaign donations, tarnishing the image of a new government that investors had bet would pull the nation out of economic and political crisis. All three deny wrongdoing and say financing was legal. While Rousseff is widely expected to lose Tuesday’s vote, investors will focus on the tally for signs of how strong support is to oust her.

"Although the impeachment is priced in, if Dilma is defeated by a wide margin it will show that Congress is on Temer’s side," said Olavo Souza, a fixed income manager at Mirae Corretora in Sao Paulo. "Votes in Congress may be a game changer to show how the government will conduct the fiscal reforms."

Temer will need two-thirds of the 81 senators to vote against Rousseff in the August or September trial to prevent her from returning to office. His aides say Rousseff’s permanent ouster would give him a freer hand to push potentially unpopular measures that include cutting pension payouts and deregulating labor laws.

Meanwhile, lawmakers in the lower house are expected to vote Tuesday on a bill governing state debt limits, seen as a litmus test of congressional support for Temer’s efforts to strengthen government finances.

The currency has surged this year amid optimism that Temer can trim a budget deficit and restore confidence in an ailing economy. His economic team is seeking a $6 billion spending freeze as ministers and the president debate where cuts should fall.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, dropped 0.03 percentage point to 12.71 percent.

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