Itaú BBA - Another week of underperformance for the BRL

FX and Capital Markets

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Another week of underperformance for the BRL

December 26, 2017

The BRL weakened amid rumors that Brazil’s sovereign credit rating could be downgraded

(full report attached)
 

Brazilian currency weakened during a week of reduced liquidity 

Despite a more benign international scenario for emerging market currencies, the Brazilian real continued to depreciate last week. On Thursday, amid rumors that Standard & Poor’s could downgrade Brazil’s sovereign credit rating, the loss sharpened. The exchange rate closed the week at 3.34 reais per U.S. dollar, weakening 1.1% and underperforming most of its peers (Charts 1, 2, 3 and 4).

Central Bank completed the rollover of FX swap contracts due in January

The monetary authority fully rolled over $9.6 billion in contracts expiring in January 2018. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6). 

Currency flow was negative last week 

The currency flow was negative last week, as $2.8 billion financial outflows outsized $171 million trade inflows. In December, the flow is negative by $2.8 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian bond offerings total $31.9 billion year-to-date (Chart 9 and table).   

Foreign flows to the stock market are positive in December

Foreign flows to the stock market remain positive, by $965 million, driven by $529 million inflows to the futures market and $436 million inflows to the spot market (Chart 10).

Non-residents reduced their long position in dollar futures 

Non-residents reduced their long position in dollar futures by $2.2 billion last week. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $13.6 billion, $15.3 billion and $ -5.5 billion, respectively (Charts 11, 12, 13 and 14).



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