RIO DE JANEIRO / Bloomberg
Brazilâ€™s real advanced for the third week, the longest rally since November, amid growing speculation that a change in government would boost local assets.
The currency gained 1.1 percent to 3.5856 per dollar, the strongest level on a closing basis since Aug. 28, bringing its weekly advance to 4.7 percent. Itâ€™s up 12 percent this month, the best performance in the world.
After dumping the real last year, traders have become more bullish in recent weeks amid signs that a change in government may be closer than ever. News the sweeping corruption scandal known as Carwash is drawing nearer to former President Luiz Inacio Lula da Silva fueled speculation that support may grow to impeach his successor, Dilma Rousseff. Protests against her government across the country are planned for Sunday.
“Yesterday it was pure euphoria, with traders overexcited,” said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores in Curitiba, Brazil. â€œToday we see some caution, and some expectation regarding manifestations on Sunday.â€
As the dust settles, many investors are realizing that the case against Lula has the potential to further complicate Brazilâ€™s sticky political situation, Correia said.
One-week implied volatility on the real remains the highest among major currencies, at 24.65 percent, data compiled by Bloomberg show. The currency also advanced along with other emerging-market currencies amid a rally in commodities. The S&P GSCI index of raw materials rose 1.2 percent.
While bad news for the government, the turmoil opened up a window for the countryâ€™s first bond sale since its credit rating was cut to junk. Brazil sold $1.5 billion of 10-year notes to yield 6.125 percent Thursday, according to data compiled by Bloomberg.
On Thursday, news that Sao Paulo prosecutors requested a preventive arrest of Lula helped extend this monthâ€™s rally. In addition to earning the ire of Lula backers, the request was also criticized by opponents of his Workersâ€™ Party, according to Folha de S. Paulo newspaper.
“Once the political issues are cleared, we may finally expect to focus on fiscal measures and hope a smoother path in implementation of new strategies,” said Ipek Ozkardeskaya, an analyst at London Capital Group. “Concrete resolution is still far on the horizon, though.”