Itaú BBA - Brazilian Real Strengthens 0.4% Last Week

FX and Capital Markets

< Back

Brazilian Real Strengthens 0.4% Last Week

January 19, 2015

The monetary authority sold $500 million in FX swaps last week and rolled over contracts due in February.

(full report attached)

The exchange rate was impacted last week by actions by the Swiss central bank and indications of fiscal policy tightening.

Although the Swiss National Bank’s decision to abandon the cap on the franc against the euro triggered risk aversion, government statements indicating fiscal policy tightening boosted the Brazilian real, which appreciated during the week. The exchange rate closed the week at 2.622 reais per U.S. dollar, gaining 0.4% from the previous week’s closing price (Charts 1, 2, 3 and 4).

The central bank sells FX swaps and rolls over contracts expiring in February

The monetary authority sold $500 million in FX swaps last week and rolled over contracts due in February. If this rollover pace of 10,000 contracts per day is sustained until the end of the month, the central bank will increase its short position in FX swaps by $1.7 billion (Charts 5 and 6).

Another week of negative currency flow

Last week, the currency flow registered $1.3 billion in net financial outflows and $30 million in net trade outflows. Outflows in January add up to $2.4 billion (Charts 7 and 8).

No new bond issuance overseas

No new issuance was announced so far in January. The last Brazilian bond placement abroad was in November 2014 (Chart 9 and table).

Foreign flows to the stock market remain negative in January

Flows to the stock market were negative by $391 million in January, with outflows from the futures market (Chart 10).

Non-residents and institutional investors increased their long positions in FX derivatives last week

Non-residents and institutional investors increased their positions in FX derivatives, particularly dollar futures, to $34.5 billion and $33.6 billion, respectively (Charts 11 and 12).

Net outflows from equity and fixed income funds dedicated to Brazil last week 

During the week ended on January 14, equity funds dedicated to Brazil experienced $102 million in net outflows, while fixed income funds posted $182 million in outflows (Charts 13 and 14).



< Back