Brazil’s Real Touches Seven-Month Low on Election Speculation

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Brazil’s Real Touches Seven-Month Low on Election SpeculationThe Brazil’s real touched its lowest level in seven months on speculation it may be hard to pull the economy out of recession as the much-maligned President Dilma Rousseff appears to be gaining more support ahead of the October elections.

The currency fell 0.6 percent to trade at 2.4118 per U.S. dollar as of 3:43 p.m. Sao Paulo time, its lowest level since Feb. 12, after earlier appreciating 0.4 percent today. The real has dropped 7.3 percent so far in September.

An MDA opinion poll released today indicated that Rousseff will garner 42 percent of the total votes cast in the second round compared with 41 percent for Marina Silva. A previous MDA survey had shown Silva was leading with 45.5 percent support against Rousseff’s 42.7 percent. The MDA survey, which was conducted on Sept. 20-21, involved 2,002 respondents. It has a margin of error of 2.2 percentage points, which means Silva and Rousseff are statistically locked in the election runoff.

“Traders are operating mostly on expectations of what the next polls will bring,” Solange Srour, a Rio de Janeiro-based chief economist at ARX Investimentos, told Bloomberg News.

Rousseff’s unpopular economic policies have pushed the economy into its first recession in five years. Brazil’s gross domestic product fell 0.6 percent in the May-June quarter after dropping 0.2 percent in the first quarter of 2014.

Brazil’s swap rates, which track expectations for swings in interest rates, plunged 0.03 percentage point to 11.75 percent on Tuesday for the contract that matures in January 2016.

To boost the real, the central bank placed foreign-exchange swaps worth $197.5 million for sale in a program that began in 2013. It also rolled over contracts valued at $296.2 million. 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