Itaú BBA - BRL back to pre-S&P downgrade level

FX and Capital Markets

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BRL back to pre-S&P downgrade level

November 23, 2015

The currency strengthened as presidential vetoes were maintained.

(full report attached)

BRL appreciated during the week to 3.72 reais per U.S. dollar

The currency strengthened as presidential vetoes were maintained in a joint session by the Senate and the Lower House. According to government calculations, if overruled, the vetoes would add R$50 billion to public spending. The exchange rate closed the week at 3.72 reais per U.S. dollar, the level seen before S&P downgraded Brazil’s sovereign rating to speculative grade. The local currency strengthened 3.5% and outperformed its peers (Charts 1, 2, 3 and 4).

Central bank maintained the FX swaps rollover and carried out line auctions

The monetary authority maintained the rollover of swap contracts due in December at a pace of 12,120 contracts per day. If this pace is sustained, contracts will be fully rolled over for a fourth consecutive month. The central bank also carried out two line auctions of up to $500 million (Charts 5 and 6).

Currency flow is positive

The currency flow was positive in the past week, driven by $41 million in trade inflows and $1.5 billion in financial inflows. The flow in November is positive by $1.9 billion (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

Foreign flows to the stock market are positive by $50 million, as $202 million inflows to the spot market outsized $152 outflows from the futures market (Chart 10).

Another week of flat investor positions in FX derivatives 

Non-residents, banks and institutional investors maintained their FX derivatives positions virtually unchanged during the week, at $29 billion, $53 billion and $25 billion, respectively (Charts 11, 12, 13 and 14).


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