Itaú BBA - BRL hovers around 3.85

FX and Capital Markets

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BRL hovers around 3.85

July 16, 2018

Despite fluctuating sharply, the BRL closed the week virtually flat at 3.85

(full report attached)

Brazilian currency performed in line with peers last week

Escalating concerns involving a trade war between the U.S. and China continue to cause volatility in the FX market. In Brazil, the exchange rate fluctuated sharply during the week but closed virtually flat at 3.85 reais per U.S. dollar, appreciating 0.3% and performing in line with its peers (Charts 1, 2, 3 and 4).

Central Bank is still refraining from FX interventions

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just continued to roll over contracts expiring in August. Its stock of FX swaps now stands at $67 billion (Charts 5 and 6).

Currency inflows in the first week of July

The currency flow was positive during the first week of the month, driven by $1.7 billion financial inflows and $322 million trade inflows (Charts 7 and 8).

No external bond issuances last week

A power utility became the first Brazilian company to issue debt securities abroad since May, offering $500 million in bonds due in 2024. Year-to-date, Brazilian bond offerings overseas total $15.6 billion (Chart 9 and table).  

Foreign flows to the stock market are slightly positive in July

Foreign flows to the stock market are positive by $790 million this month, driven by $380 million inflows to the futures market and $410 million inflows to the spot market (Chart 10).

Investors maintained their FX derivatives positions

Investor positions in FX derivatives were virtually unchanged last week. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $36.5 billion, $12.5 billion and $17.2 billion, respectively (Charts 11, 12, 13 and 14). 

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