The elections in Brazil: challenges for the BRL

The elections in Brazil: challenges for the BRL

One of the most unpredictable and scandalous elections in the world of emerging markets will be held on the 7th of October in Brazil.  Among the candidates are an ex-army captain Jair Bolsorano, former environment minister Marina Silva, former governor Ciro Gomes, candidate for PSDB Geraldo Alckmin, PhD professor Fernando Haddad and candidate for the Podemos party Alvaro Dias.

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After ex-president Dilma Roussef was accused of breaking the budget laws and not following Constitutional principles in 2015, the Senate voted for her impeachment. Since that time, the presidential role is served by ex-vice president Michel Temer, who has not been accepted by the people.  His term was marked by massive protests, criminal charges and accusations of stealing budget capital. Due to this fact, Temer was banned from future elections.  This resulted in the worst economic recession in Brazilian history.

Most people see in upcoming elections a potential uncertainty for the Brazilian real as the country should deal with fiscal and structural reforms. Right now, with GDP growth at 0.2% in Q2, as well as high levels of unemployment and inflation, the Brazilian currency keeps struggling, losing nearly 20% against USD. USD/BRL is trading at its highest since the beginning of the year. Due to this situation, it is expected that the central bank is going to change its performance from neutral to hawkish, although does not plan to hike its interest rate.

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The situation is fuelled by the latest polling results which show Bolsonaro and Haddad gaining nearly the same percent of votes. Haddad, candidate from Workers party, was charged with receiving illegal donations for his campaign in 2012 as well as Geraldo Alckmin, who received $10 million during his 2014 elections for governor of São Paulo.

However, some experts think that current weakness of the real is temporary and incomparable with the situation during 2014-2016 years. Brazil is seen quite independent from the other emerging markets and has more opportunities than other countries of Latin America. In the latest Fitch report the negative outlook of the country was changed to stable with a “BB-” rating. Analysts anticipate the election outcome for clearer view on the real’s price.

For a broader view on the situation it is necessary to continue following the latest election polls and the price change of USD/BRL in FBS trading terminal.

 

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