Itaú BBA - BRL remains range-bound

FX and Capital Markets

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BRL remains range-bound

February 26, 2018

Despite sovereign rating downgrade by Fitch, the BRL remained range-bound

(full report attached)

Notwithstanding a rating downgrade last week, the exchange rate remained near 3.25

Despite sovereign rating downgrade by Fitch, the Brazilian currency followed the external scenario and remained range-bound. The exchange rate closed the week at 3.24 reais per U.S. dollar, depreciating 0.3% and performing in line with most of its peers (Charts 1, 2, 3 and 4).

Central Bank continues to intervene in the FX market

The monetary authority continued to roll over FX swap contracts at a pace of 9,500 contracts per day. If this pace is sustained until the end of the month, contracts expiring in March will be fully rolled over. The Central Bank’s stock of FX swaps now stands at $24 billion (Charts 5 and 6). 

Currency flow remains positive 

The currency flow remains positive in February. Despite $331 million outflows last week (driven by $199 million financial outflows and $132 million trade outflows), the month-to-date flow is positive by $1.9 billion (Charts 7 and 8).

No external bond issuances last week

There were no new bond issuances abroad by Brazilian companies last week. Year-to-date, Brazilian bond offerings overseas total $7.9 billion (Chart 9 and table).  

Foreign flows to the stock market remain negative in February

Foreign flows to the stock market are negative by $459 million in February, as $1.2 billion outflows from the spot market offset $736 million inflows to the futures market (Chart 10).

FX derivatives positions were virtually unchanged last week 

Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $19.8 billion, $9.9 billion and $ -5.4 billion, respectively (Charts 11, 12, 13 and 14).

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