Brazil: Brazilian real depreciates amid global and domestic uncertainties
October 8, 2014
The Brazilian real (BRL) ended September at 2.45 BRL per USD, which was 9.4% weaker than the same day last month. On an annual basis, this represented a 10.4% depreciation and marked the lowest value of the real in almost six years. After depreciating further in the beginning of October, the real has regained some of its lost ground since 3 October.
The depreciation comes amid a weakening outlook for the Brazilian economy and an increasing expectation that the Fed will raise interest rates in the near future. An increase in American interest rates would make higher-yielding currencies, such as the real, less attractive to investors and has resulted in a wide selloff of emerging-markets assets. The Fed is set to end its bond-buying program this month and is expected to begin raising interest rates as early as Q2 2015.
In addition, the real’s volatility has been influenced by events in Brazil’s election. A runoff election will take place on 26 October between current President Dilma Rousseff and rival Aécio Neves. The real has fluctuated along with Rousseff’s election polls. Under Rousseff’s presidency, the Brazilian economy has deteriorated and little policy change is expected if she is re-elected. Whereas Neves has promised to enact much needed reforms in the country. As a consequence, the real has followed a general pattern of deteriorating when Rousseff rises in the polls and falling when a change in governments is seen as an increasing possibility.