Itaú BBA - BRL strengthens in line with peers

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BRL strengthens in line with peers

May 28, 2018

The BRL closed the week at 3.65 reais per dollar, gaining 2.3% and performing in line with its peers

(full report attached)
 

Brazilian currency erased some of the loss felt in recent weeks 

The beginning of last week was benign for emerging market currencies, with most of them strengthening against the U.S. dollar. However, on Wednesday, higher risk aversion appreciated the greenback again. The local exchange rate closed the week at 3.65 reais per dollar, gaining 2.3% and performing in line with its peers (Charts 1, 2, 3 and 4).

Central Bank maintained FX swap offers

Along with offering 4,225 contracts per day to fully roll over the $5.7 billion expiring in June, last week the Central Bank offered an additional 15,000 swap contracts (totaling $750 million) per day. The monetary authority’s stock of FX swaps now stands at $29 billion (Charts 5 and 6).

Modest currency inflows in May

Financial outflows have been pressuring the monthly result. Last week, $1.43 billion financial outflows offset $1.38 billion trade inflows. Month-to-date, the flow is positive by $300 million (Charts 7 and 8).

No external bond issuances last week 

There were no issuances by Brazilian companies abroad last week. Year-to-date, Brazilian bond offerings overseas total $15.1 billion (Chart 9 and table).  

Foreign flows to the stock market are negative in May

Foreign flows to the stock market are negative in May, as $1.2 billion outflows from the spot market outsized $272 million inflows to the futures market (Chart 10).

Institutional investors changed their positions in FX derivatives

Institutional Investors reduced their long position in dollar futures by $831 million, while increasing their short position in FX swaps by $700 million. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $25.6 billion, $3.1 billion and $ -0.5 billion, respectively (Charts 11, 12, 13 and 14).



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