Itaú BBA - BRL reaches its strongest level since October

FX and Capital Markets

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BRL reaches its strongest level since October

January 29, 2018

Emerging market currencies continued to perform well, but the 1.5% gain in the BRL was stronger than for most of its peers

(full report attached)
 

The exchange rate closed the week at 3.15 reais per U.S. dollar 

The exchange rate reached 3.12 during the day on Friday, but closed at 3.15. Emerging market currencies continued to perform well during the week, but the 1.5% gain in the Brazilian real was stronger than for most of its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6).  

Currency flow is positive by $4.4 billion in January

The currency flow remains positive this month, with significant financial inflows. As of January 19, $5.5 billion financial inflows outsized $1.0 billion trade outflows (Charts 7 and 8).

New bond offerings abroad 

Last week, an oil & gas company issued $2.0 billion in bonds due in 2029, while a cosmetics manufacturer issued $750 million in bonds due in 2023. This month’s bond offerings are the largest since May 2016 (Chart 9 and table).

Foreign flows to the stock market are positive in January

Foreign flows to the stock market are positive by $1.9 billion in January, driven by $92 million inflows to the futures market and $1.8 billion 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 $1.6 billion. Meanwhile, non-residents increased their long position in cupom cambial by $990 million. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $15.5 billion, $14.5 billion and $ -6.5 billion, respectively (Charts 11, 12, 13 and 14).



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