Itaú BBA - BRL outperforms its peer currencies

FX and Capital Markets

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BRL outperforms its peer currencies

October 22, 2018

BRL appreciated 1.9% during the week and outperformed its peers

(full report attached)

Exchange rate touched 3.67 reais per U.S. dollar

Notwithstanding some relief later in the week, the international background pressured FX markets. Concerns with higher interest rates in the U.S. and tense Italian politics fueled risk aversion, hurting emerging market assets. The Brazilian real strengthened to as much as 3.67 per dollar but closed at 3.71 on Friday. Still, the currency appreciated 1.9% during the week and outperformed its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market last week

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just rolled over of contracts expiring in November. Its stock of FX swaps now stands at $69 billion (Charts 5 and 6).

Currency flow goes back to negative territory

Following a week of inflows, the currency flow became negative again last week, as $837 million financial outflows topped $25 million trade inflows (Charts 7 and 8).

New bond issuance abroad last week

A local beef company issued $500 million in bonds due in 2026. Year-to-date, Brazilian bond offerings overseas total $17.1 billion (Chart 9 and table).

Foreign flows to the stock market are negative in October

Foreign flows to the stock market are negative by $5.0 billion this month, pressured by $4.9 billion outflows from the futures market (Chart 10).

Institutional investors reduce their position in dollar futures 

Institutional investors reduced their position in dollar futures by $1.1 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $38.1 billion, $14.6 billion and $13.9 billion, respectively (Charts 11, 12, 13 and 14).



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