The Brazilian currency dipped under four Real to the dollar for the first time in five weeks at close on Thursday as the markets reacted favorably to the emergence of two clear presidential election frontrunners. The Real closed at 3.99 to the US dollar just two weeks after hitting a record low of almost 4.2 to the dollar -- it's lost around 17% since the start of the year.
The Argentine peso continued to drop as investors worried that a revised US$57.1 billion program with the International Monetary Fund, which assured the government's funding until the end of next year, could hurt the ailing economy and leave foreign exchange markets volatile.
”The initial market reaction to yesterday's (IMF) announcement is mixed, said Grupo SBS in a note to clients. The Argentine peso tumbled 2.65%.
The Buenos Aires stock market index Merval was down 0.9% while the JP Morgan country risk also dropped 3.4%, some 21 points to 593.
Anxiety in Brazil around next month's vote drove the Real currency to boomerang in recent weeks, battered by near-daily voter intention polls.
It approached all-time lows as traders feared the next president could fail to curb ballooning public debt, but bounced back in recent days as far-right lawmaker Jair Bolsonaro seemed to consolidate its lead in a first-round vote.
Yet Bolsonaro, who has tapped a University of Chicago-trained banker as an economic adviser, would probably have difficulty beating his main rival, leftist Fernando Haddad,
who is backed by jailed former President Lula da Silva.
Traders say volatility is likely to stay high even after the vote as clarity over what the next president will manage to achieve is unlikely to emerge anytime soon.
The Real firmed 0.78%, the best-performing currency in Latin America, though it shed some of its earlier gains. Meanwhile, Brazil's benchmark stock index Bovespa rose 1.44%, led by shares in Petrobras. Its shares were up 6.3% in afternoon trading, after the firm agreed to pay an US$ 853.2 million fine to settle charges that former executives and directors of the state-run Brazilian oil company broke U.S. anti-corruption laws by bribing politicians and then seeking to conceal the payments.
It was the latest milestone for the company in turning the page on the landmark Car Wash” investigation.
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.
The Mexican peso gained 0.24 percent, even as uncertainty surrounding the renegotiation of the North American Free Trade Agreement (NAFTA) weighed on sentiment. The prospects for a quick deal to update NAFTA appeared to dim on Wednesday after U.S. President Donald Trump blasted Canada's stance and threatened to impose tariffs on cars imported from Canada.