Itaú BBA - BRL reaches the strongest level in 2016 due to repatriation funds

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BRL reaches the strongest level in 2016 due to repatriation funds

October 31, 2016

The BRL appreciated and reached its highest level in 2016 (3.10) due to capital inflows brought by the Repatriation Law.

(full report attached)

Brazilian currency hits the strongest level for the year, but reverses mid-week

The Brazilian currency appreciated against the U.S. dollar early in the week and reached its highest level for the year (3.10) due to capital inflows brought by the Repatriation Law. Later on, however, stronger activity data in the U.S. boosted the dollar against many currencies, including the real. The exchange rate closed the week at 3.20 reais per dollar, performance in line with its peers (Charts 1, 2, 3 and 4).

Central bank decides not to roll over FX swap contracts expiring in November

Due to atypical inflows driven by the Repatriation Law, the central bank announced its decision not to roll over swap contracts expiring in November. Furthermore, the monetary authority maintained the amounts in its reverse swap auctions at $250 million. The central bank announced it will carry out today a FX credit line auction of up to $3 billion. Currently, its short position in FX swaps stands at $28 billion (Charts 5 and 6).

Another week of currency inflows 

The currency flow is positive by $2.5 billion in October. Last week, there were $1.7 billion trade inflows and $738 million financial inflows (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 $19 billion year-to-date vs. $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are positive

Foreign flows to the stock market are positive by $1.4 billion in October, driven by $1.1 billion inflows to the spot market and $306 million inflows to the futures market (Chart 10).

Investors changed their positions in FX derivatives

Non-residents increased their long position in dollar futures by $3 billion, while institutional investors reduced their short position in dollar futures by $4.5 billion. Non-residents, banks and institutional investors hold positions of $13 billion, $26 billion and $ -3.9 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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