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BRL, IBOVESPA, NZD, AUD Vulnerable to Brazil Election Volatility

BRL, IBOVESPA, NZD, AUD Vulnerable to Brazil Election Volatility

Dimitri Zabelin, Analyst
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TALKING POINTS – Brazil Election, Emerging Markets, BRL/USD, ibovespa, Trade Wars, USDOLLAR

  • Second round of Brazilian presidential election to take place Sunday, October 28
  • Market-favorite Jair Bolsonaro of the Social Liberal Party is leading in the polls
  • Cycle-sensitive assets are vulnerable to market fluctuations caused by the election

See our Q4 forecasts to learn what will drive key asset prices through year-end!

The Brazilian Real and benchmark IBOVESPA equity index have been subject to higher-than-usual volatility as Brazil undergoes its most turbulent election since 1985. The first round of elections saw Fernando Haddad of the Worker’s Party (PT) walk away with 29% of the vote. Social Liberal Party leader Jair Bolsonaro garnered 46%.

The second round will be held this Sunday on October 28th. While Bolsonaro’s market-oriented solutions to Brazil’s economic woes are garnering support from investors overseas, the long-term political risk he poses may overshadow any short-term relief his agenda offers.

The uncertainty in this election is likely to continue weighing down on emerging markets, which are already being pressured by broader risk aversion. This is primarily driven by a strengthening US Dollar and escalating trade wars, among other risk-inducing events that EM’s have undergone this year.

The Australian and New Zealand Dollars may be vulnerable to market swings caused by the polarizing election and rise of anti-establishment candidates. Risk-off assets – such as the Swiss Franc, Japanese Yen and US Dollar - may rise amid the uncertainty.

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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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