Itaú BBA - A more benign external scenario boosts currencies

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A more benign external scenario boosts currencies

March 20, 2017

A more benign external scenario and improved risk outlook strengthen the BRL

(full report attached)

External scenario and improved risk outlook strengthen the BRL

The more gradual stance adopted by the U.S. Federal Reserve in its latest monetary policy decision supported currencies last week. Additionally, Moody’s Investors Service changed the outlook on Brazil's credit rating to stable from negative, boosting expectations about investment flows into Brazil. The exchange rate closed the week at 3.09 reais per U.S. dollar, appreciating 1.63% from a week earlier and performing in line with its peers (Charts 1, 2, 3 and 4).

Central bank starts to roll over FX swap contracts due in April

Last week, the monetary authority started to roll over contracts due in April, at a pace of 10,000 contracts per day. If this pace is sustained until the end of the month, the central bank will allow $4.2 billion to expire. Its stock of FX swap contracts now stands at $22 billion (Charts 5 and 6).

Currency inflows on March 6-10

Between March 6 and 10, $72 million financial inflows and $2.1 billion trade inflows were registered. In March, the flow is positive by $3.6 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian corporate bond offerings total $2.05 billion month-to-date and $9.75 billionyear-to-date (Chart 9 and table).   

Foreign flows to the stock market are negative

Foreign flows to the stock market arenegative by $744 million in March, driven by $726 million outflows from the spot market and $18 million outflows from the futures market (Chart 10).

Investors maintain their positions in FX derivatives

Investors’ positions in FX derivatives were little changed last week. Non-residents, banks and institutional investors hold positions of $11.5 billion, $16.1 billion and $ -6.1 billion, respectively (Charts 11, 12, 13 and 14).


 



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