Brazil Election Risk Sends Real Implied Volatility Toward Crisis Levels

One-week implied volatility on the Brazilian real has climbed to around 30% as markets prepare for Brazil's election, with traders paying more for short-term currency protection.
Brazil's nominal budget deficit has returned to roughly 9% of GDP, adding fiscal uncertainty to the political event risk. Meanwhile, the real has remained around 5.2 per dollar under Lula despite significant swings along the way.
For investors with emerging-market exposure, the combination of elevated fiscal deficits, election uncertainty and sharply higher FX volatility puts Brazil firmly in focus. The iShares MSCI Brazil ETF $EWZ provides a widely followed gauge of Brazilian equity exposure.