Itaú BBA - Brazilian real strengthened over the week

FX and Capital Markets

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Brazilian real strengthened over the week

October 26, 2015

Brazilian real strengthened due to a more favorable scenario.

(full report attached)

Domestic and international scenarios favored appreciation of the local currency

Lower interest rates in China and signs of more stimuli in the Eurozone supported the real during the week. Internally, the approval of a bill to repatriate funds by a special commission in the Lower House contributed to strengthen the currency, which closed the week at 3.88 reais per U.S. dollar, appreciating 1.2% (Charts 1, 2, 3 and 4).

Central bank sustains the pace of FX swap rollovers

The monetary authority maintained the rollover of swap contracts expiring in November at a pace of 10,275 contracts per day.  If this pace is sustained, contracts will be fully rolled over for a third consecutive month (Charts 5 and 6).

Currency inflows during the week

The currency flow was positive in the last week, with $219 million in trade inflows and $65 million in financial inflows. Notwithstanding a positive balance of $284 million during the week, the flow is negative by $1.3 billion in October (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. Year-to-date, issuances add up to $8 billion (Chart 9 and table).

Foreign flows to the stock market are positive in October

Foreign flows to the stock market are positive by $1.3 billion in October, with $205 million in inflows to the futures market and $1.1 billion in inflows to the spot market (Chart 10).

Investor positions in FX derivatives were virtually unchanged

Investor positions in FX derivatives remained virtually unchanged at $31 billion for non-residents, $51 billion for banks and $24 billion for institutional investors (Charts 11, 12, 13 and 14).


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