Itaú BBA - BRL outperformed its peers last week

FX and Capital Markets

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BRL outperformed its peers last week

July 10, 2017

As wage pressures in the US remain subdued, late in the week the greenback lost momentum against the BRL

(full report attached)

Brazilian currency appreciates in U.S. labor market data week

Notwithstanding strong payroll figures in the U.S., wage pressures remain subdued, signaling that the Federal Reserve will raise interest rates gradually. Hence, late in the week, the greenback lost momentum against some emerging market currencies, including the BRL. The exchange rate closed the week at 3.28 reais per dollar, appreciating 0.8% from a week earlier and outperforming its peers (Charts 1, 2, 3 and 4).

Central Bank announced the beginning of rollover of FX swap contracts expiring in August

The monetary authority announced that would start today the rollover of FX swap contracts expiring in August, at a pace of 8,300 contracts. If this 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 $28 billion (Charts 5 and 6)

Currency outflows in June

Last week, the currency flow was positive, as $1.342 billion trade inflows outsized $364 million financial outflows. In June, however, the currency flow was negative by $4.3 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian corporate bond offerings total $16 billion year-to-date vs. $11.5 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market were positive in June

Foreign flows to the stock market were positive by $432 million in June. In July, foreign flows are negative by $146 million, as $214 million outflows from the futures market outsized $68 million inflows to the spot market (Chart 10).

Institutional investors changed their positions in FX derivatives

Last week, institutional investors reduced their short position in dollar futures by $5.4 billion, and are now long in this derivative. They also increased their short position in cupom cambial by $4.1 billion and reduced their long position in FX swaps by $1.4 billion. Non-residents, banks and institutional investors hold positions of $14.1 billion, $12.7 billion and $363 million, respectively (Charts 11, 12, 13 and 14).


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