Brazil's real poised for bumpy ride ahead of elections

Brazil's real poised for bumpy ride ahead of elections

The BUENOS AIRES Reuters poll shows that Brazil's real is poised for a bumpy ride ahead of the country's election runoff later this month, as political tensions simmer after a surprisingly good performance by President Jair Bolsonaro in the first round.

The currency has rallied 4.2% this week to 5.19 per US dollar on Wednesday, despite Bolsonaro's better than expected results on Sunday, despite his leftist rival Luiz Inacio Lula da SilvaLula da Silva winning more votes.

According to the median estimate of 21 economists, the currency is expected to trade 2% weaker at 5.30 per US dollar on October 31, when domestic markets react to the runoff scheduled for the last Sunday of the month.

Edward Moya, Senior Markets Analyst, said Brazil's real will likely remain volatile until the election, but after the dust settles it should extend its recent uptrend, supported by the peak in U.S. yields.

Bolsonaro and Lula are going to campaign for four more weeks in Brazil's most fraught election since the end of military rule in 1985, after allegations by the president that the voting system can't be trusted.

Both of the hunters were hunting endorsements in a race that was more competitive than previously thought. In the first round, Lula won 48.4% of the votes, a relatively small lead over Bolsonaro's unexpected result of 43.2%.

The currency should remain supported by wide arbitrage differentials given the decline in U.S. Treasury note yields, on one side, and expectations of higher ones for Brazilian bonds on the other hand.

In a year, the real appreciated by 0.6% to 5.16 per U.S. dollar, a slightly stronger forecast than the value of 5.20 expected in the same period last month. In 2022, the currency is up 7.2%.

The Mexican peso is poised to look at another year of stability in 2023, with estimates for the currency's value set at around 20.00 per US dollar in the coming 12 months, contrary to its turbulent regional neighbors.

It would be the sixth year in a row, except for a bout of sharp oscillations at the height of the coronaviruses in 2020, that the peso would trade within a well defined range of 18.00 - 22.00 per US dollar.