September 27, 2018 / 3:48 PM / 3 months ago

EMERGING MARKETS-Brazil real firms past 4.00 as electoral speculation continues

    By Bruno Federowski
    BRASILIA, Sept 27 (Reuters) - The Brazilian real on Thursday
strengthened past 4 to the dollar, leading gains among Latin
American currencies as traders continued to unwind short bets
amid speculation over the outcome of this year's presidential
elections.
    The Argentine peso, however, continued to drop as investors
worried that a revised $57 billion program with the
International Monetary Fund, which assured the government's
funding until the end of next year, could hurt the ailing
economy and leave foreign exchange markets volatile.

    Anxiety around next month's vote drove the Brazilian real to
boomerang in recent weeks, battered by near-daily voter
intention polls.
    It approached all-time lows as traders feared the next
president could fail to curb balooning public debt, but bounced
back in recent days as far-right lawmaker Jair Bolsonaro seemed
to consolidate its lead in a first-round vote.
    Yet Bolsonaro, who has tapped a University of
Chicago-trained banker as an economic adviser, would probably
face difficulty beating his main rival, leftist Fernando Haddad,
who is backed by jailed former President Luiz Inacio Lula da
Silva.
    Traders say volatility is likely to stay high even after the
vote as clarity over what the next president will manage to
achieve is unlikely to emerge anytime soon.
    "We're at peak volatility right now but that doesn't mean
that once the winner is known, everything will be smooth
sailing," a portfolio manager at a Rio de Janeiro asset manager
said.
    The real firmed 0.9 percent, the best-performing
currency in Latin America, while Brazil's benchmark stock index
 rose 1.3 percent. The Argentine peso,
meanwhile, tumbled 2.3 percent as investors worried that a
revised $57 billion program with the IMF could hurt the ailing
economy and leave foreign exchange markets volatile.

    Other markets in the region mostly rose, extending the
previous day's gains after the U.S. Federal Reserve raised
interest rates and left intact plans to steadily tighten
monetary policy.
    The U.S. central bank foresees another rate hike in
December, three more next year, and one increase in 2020. Some
investors had expected the bank to predict more rate hikes,
which could dampen demand for high-yielding assets.
    
    Key Latin American stock indexes and currencies at 1520 GMT:
 Stock indexes                               daily %    YTD %
                                              change   change
                                   Latest             
 MSCI Emerging Markets              1046.02     0.41    -9.71
 MSCI LatAm                         2534.97     1.01   -10.37
 Brazil Bovespa                    79685.48     1.31     4.30
 Mexico IPC                        49889.45     0.57     1.08
 Chile IPSA                         5327.63    -0.12    -0.12
 Argentina MerVal                  34808.82     2.55    15.78
 Colombia IGBC                     12351.92     0.28     8.63
                                                             
 Currencies                                  daily %    YTD %
                                              change   change
                                                      
                                     Latest           
 Brazil real                         3.9886     0.89   -16.93
 Mexico peso                        18.8155     0.10     4.70
 Chile peso                           659.7     0.32    -6.83
 Colombia peso                      2991.94     0.19    -0.33
 Peru sol                             3.303    -0.03    -2.00
 Argentina peso (interbank)         39.4500    -2.28   -52.85
                                                      
 Argentina peso (parallel)            37.75     1.32   -49.06
                                                      
 
 (Reporting by Bruno Federowski
Editing by Alistair Bell)
  
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