Brazil’s Real Drops on Speculation President Rousseff Will Win Elections

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Brazil’s Real Drops on Speculation President Rousseff Will Win ElectionsBrazil’s real fell on bets election polls are likely to show more support for President Dilma Rousseff despite the fact that the economy is weathering a recession, coupled with above-target inflation.

The real dropped 1.1 percent to 2.2658 per U.S. dollar as of 2:46 pm Sao Paulo time, the biggest decline among emerging market currencies. Swap rates on contract that matures in January 2020 rose 0.23 percentage point, or 23 basis points, to 11.25 percent.

“These elections are based on surprises and very quick shifts in directions,” Joao Paulo de Gracia Correa, a Curitiba, Brazil-based currency trader at Correparti Corretora de Cambio, told Bloomberg News. “Politics will keep guiding the market for quite a while.”

The real has advanced 4.6 percent so far in 2014, making it the biggest gainer in emerging markets, on speculation Rousseff will be defeated in this year’s election. A Sensus survey published on IstoE magazine website indicated the main opposition candidate Marina Silva will clinch 47.6 percent voter support in the second round, against 32.8 for Rousseff.  The survey, which involved 2,000 respondents, has a margin of error of +/- 2.2 percentage points.

In order to boost the real and curb import-price surges, Brazil placed $197.9 million worth of foreign-exchange swaps for sale on Monday and rolled over contracts valued at $296.5 million.

Swap rates, which measure forecasts of adjustments in borrowing costs, fell earlier on Monday after economists in a central bank survey lowered their average estimate for this year’s economic growth to 0.48 percent, the 15th straight week of downgrades.

Brazil’s gross domestic product fell 0.6 percent in the three months through June after declining 0.2 percent in the first quarter, reported the country’s national statistics office on Aug. 29.To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com