Itaú BBA - BRL tests new highs and Central Bank resumes intervention

FX and Capital Markets

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BRL tests new highs and Central Bank resumes intervention

July 4, 2016

The reversal of the global risk-off movement favored emerging markets currencies last week

(full report attached)

International scenario favored emerging currencies.

The reversal of the risk-off movement in the international market favored emerging markets currencies last week. The Brazilian real reached 3.18 reais per dollar and closed the week at 3.24, appreciating 4.3% and outperforming its peers. (Charts 1, 2, 3 and 4).

Central bank resumes intervention in the FX market.

The monetary authority carried out a reverse FX swaps auction totaling $500 million, and announced another $500 million auction to be held today. The central bank had not announced reverse swap auctions since May. Currently, the short position in swaps stands at $61 billion. (Charts 5 and 6).

Positive FX flow in June.

The FX flow was positive for the second consecutive week. In June, trade inflows ($2.8 billion) outsized financial outflows ($916 million), totaling $1.9 billion FX inflows. (Charts 7 and 8).

New issuances overseas last week.

Brazilian companies offered debt abroad last week. A company in the meatpacking industry raised $250 million maturing in 2023. Another company, in the forging industry, raised $150 million maturing in 2021. (Chart 9 and table).

Negative foreign flows to the stock market in June.

Foreign flows to the stock market were negative in June, as $485 million outflows from the futures market outsized $191 million inflows to the spot market. (Chart 10).

Foreign investors changed their positions in currency derivatives.

Foreign investors reduced their positions in dollar futures by $3.0 billion and increased their positions in cupom cambial by $3.2 billion. Other positions were maintained virtually unchanged. Foreign investors, banks and institutional investors hold positions of $26 billion, $36 billion and $13 billion respectively. (Charts 11, 12, 13 and 14).



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