Itaú BBA - BRL continues to underperform its peers

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BRL continues to underperform its peers

April 16, 2018

The exchange rate closed the week at 3.42 reais per U.S. dollar, depreciating 3.4% and underperforming its peers

(full report attached)

Currency weakened last week notwithstanding a change in outlook by Moody’s

Moody's Investors Service changed its outlook on Brazil’s sovereign credit rating to stable from negative, and reaffirmed its Ba2 rating (two notches below investment grade). Despite the revision, lower global risk appetite and persistent political uncertainties pressured the local currency last week. The exchange rate closed the week at 3.42 reais per U.S. dollar, depreciating 3.4% and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank continued to roll over FX contracts expiring in May

The monetary authority continued to roll over the $2.6 billion in FX swap contracts due in May. If the same pace is maintained until the end of the month, contracts will be fully rolled over. The Central Bank’s stock of FX swaps now stands at $24 billion (Charts 5 and 6).

Currency inflows in the first week of April

The currency flow was positive in the first week of the month, driven by $1.2 billion financial inflows and $1.5 billion trade inflows (Charts 7 and 8).

New bond offerings abroad 

Two companies placed debt securities overseas last week: an oil & gas enterprise offered $600 million in bonds due in 2025 and a financial institution issued $750 million in bonds due in 2023. Year-to-date, Brazilian bond offerings overseas total $14.3 billion (Chart 9 and table). 

Foreign flows to the stock market are positive in early April

Foreign flows to the stock market are positive this month, driven by $605 million inflows to the futures market and $127 million inflows to the spot market (Chart 10).

Institutional investors changed their position in dollar futures

Institutional investors reduced their short position in dollar futures by $1.5 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $17.0 billion, $10.1 billion and -$3.0 billion, respectively (Charts 11, 12, 13 and 14).



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