Itaú BBA - BRL strengthens during volatile week

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BRL strengthens during volatile week

November 21, 2016

During a week of sharp volatility, the BRL hit 3.47 reais per dollar, but closed the week with a slight gain

(full report attached)

After reaching recent lows, BRL strengthened later in the week

Uncertainties surrounding U.S. economic policy continue to pressure emerging market currencies. During a week of sharp volatility, the Brazilian currency hit 3.47 reais per dollar on Monday, but closed the week with a slight gain, at 3.38, and outperformed its peers (Charts 1, 2, 3 and 4).

Central bank continued to intervene in the FX market to reduce volatility

Last week, the monetary authority accelerated the rollover pace of swap contracts expiring in December to 20,000 contracts per day. Starting on Wednesday, the central bank also auctioned 10,000 new swap contracts. For today, it only announced the rollover of contracts due in December (Charts 5 and 6).

Currency inflows last week 

Last week, $2.1 billion trade inflows outsized $843 million financial outflows. Nevertheless, the currency flow is negative by $924 million in November (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 negative 

Foreign flows to the stock market are negative by $951 million in November, driven by $864 million outflows from the spot market and $87 million outflows from the futures market (Chart 10).

Investors changed their positions in FX derivatives

Non-residents increased their long position in dollar futures by $1.2 billion, while reducing their long position in cupom cambial by $1.5 billion. Institutional investors reduced their short position in cupom cambial by $1.5 billion. Non-residents, banks and institutional investors hold positions of $13.9 billion, $21.8 billion and $ -5.0 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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