Itaú BBA - BRL reaches strongest level since May

FX and Capital Markets

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BRL reaches strongest level since May

September 11, 2017

BRL reaches 3.09 reais per dollar, its strongest level since May.

(full report attached)

The exchange rate appreciated over the last week and reached 3.09 reais per dollar.

The approval of the new long-term rate for subsidized loans, the TLP, and a better outlook regarding fiscal  reforms benefited the Brazilian currency last week. The exchange rate closed the week at 3.09 reais per U.S. dollar, appreciating 1.7% and overperforming peer currencies. (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. The stock of FX swaps now stands at $28 billion (Charts 5 and 6).

Negative currency flows in August.

Despite positive readings in the first two weeks, the currency flow was negative by $700 million in August, with $5.2 billion financial outflows and $4.5 billion trade inflows. Over the last week, the flow was negative by $841 million, with $2.2 billion financial outflows and $1.4 billion trade inflows. (charts 7 and 8).

New bond issuances abroad.

A Brazilian company from the pulp and paper sector raised $400 million in the overseas market, with $200 million maturing in 2026 and the outstanding $200 million maturing in 2047.  Brazilian corporate bond offerings total $16.7 billion year-to-date, compared to $17.7 billion one year ago (Chart 9 and table).

Foreign flows are negative in August.

Foreign flows to the stock market are negative by $500 million in August, with $627 million outflows from the futures market outsizing $127 million inflows to the spot market. (Chart 10).

Investors alter their positions in dollar derivatives.

Last week, institutional investors raised their short position in dollar futures by $3.0 billion and increased their short position in cupom cambial by $700 million. Non-resident investors, in turn, increased their short positions in the latter by $2.8 billion. Non-residents, banks and institutional investors hold positions of $16.0 billion, $16.5 billion and -$5.5 billion, respectively (Charts 11, 12, 13 and 14).


 



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