Traders Are Betting Hard Against Their Old Star The Brazilian Real

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Over the weekend we talked about how Brazil’s economy had hit bubble speed, a level of GDP growth many believe is unsustainable.

Traders are now betting hard that the current value of the Brazilian currency is unsustainable as well.

Premiums to hedge against a fall in the Brazilian real are now the highest of any currency within developing markets.


One-month options giving investors the right to sell the real cost 7 percentage points more than contracts to buy as of May 20, the most among 24 emerging currencies tracked by Bloomberg. The difference is a change from three months earlier when Russia’s ruble and Hungary’s forint demanded higher premiums for possible declines, data compiled by Bloomberg show.

Traders are expecting the currency’s fluctuation to increase in the coming month. One-month implied volatility on real options jumped to 21.8 per cent on May 21, the highest level since July, and climbed to an all-time high of 70.9 per cent in October 2008, one month after the collapse of the Lehman Brothers Holdings Inc. led the real to fall to 2.62 per dollar.

How things have changed for what just six months ago had been a star currency. Here’s where things stand now for the BRL/USD:


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