Itaú BBA - BRL extended losses despite more benign global environment

FX and Capital Markets

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BRL extended losses despite more benign global environment

May 14, 2018

The BRL weakened to 3.60 reais per dollar, depreciating 2.1% during this period

(full report attached)

Currency got some relief during the week, but reached new lows against the dollar 

Lower-than-expected inflation figures in the U.S. provided some relief to the Brazilian real and other currencies during the week. Nevertheless, the exchange rate weakened to 3.60 reais per dollar, depreciating 2.1% during this period and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank announces change in FX swap offers

On Friday, the Central Bank announced changes in the way he intervenes in the FX market. The monetary authority will offer 4,225 contracts per day to roll over the $5.7 billion expiring in June. If this pace is sustained until the end of the month, contracts will be fully rolled over. Additionally, the Central Bank announced a sale of 5,000 swap contracts ($250 million) to take place this Monday. If this pace is sustained, another $3.0 billion will be offered during the month (and not only in the end of the period, as previously planned). The monetary authority’s stock of FX swaps now stands at $24 billion (Charts 5 and 6). 

Currency inflows in early May

After a strong balance in April, the currency flow remained positive in the first week of May, as $1.9 billion trade inflows offset $256 million financial outflows. Month-to-date, the flow is positive by $283 million (Charts 7 and 8).

No external bond issuances last week 

Year-to-date, Brazilian bond offerings overseas total $14.9 billion (Chart 9 and table).  

Foreign flows to the stock market are negative in May

Foreign flows to the stock market are negative in April, driven by $43 million outflows from the futures market and $653 million outflows from the spot market (Chart 10).

Small changes in FX derivatives positions last week 

After a month of rising long positions in FX derivatives by non-residents and shrinking short positions by institutional investors, these figures remained virtually unchanged last week. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $23.1 billion, $2.2 billion and $ -1.4 billion, respectively (Charts 11, 12, 13 and 14).



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