Itaú BBA - BRL tests new lows

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BRL tests new lows

January 26, 2016

The central bank’s Monetary Policy Committee decision to keep the Selic unchanged surprised market expectations and pressured the currency

(full report attached)

BRL hits new low at 4.17

The central bank’s Monetary Policy Committee decision to keep the benchmark interest rate unchanged surprised market expectations and pressured the currency, that reached 4.17 reais per U.S. dollar. The BRL closed the week at 4.09, weakening 0.60% and underperforming its peers (Charts 1, 2, 3 and 4).

Central bank maintained rollover of swap contracts expiring in February

The monetary authority maintained the rollover of contracts due in February at a pace of 11,600 contracts per day. If this pace is sustained, contracts will be fully rolled over for a sixth consecutive month (Charts 5 and 6).

Negative currency flow in January

The currency flow was positive last week, but remains negative in January. Last week, there were $656 million trade inflows and $387 million financial outflows (Charts 7 and 8).

No external bond issuance by Brazilian companies last week

There were no issuances this year. Issuances added up to $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are negative

Foreign flows to the stock market are negative in January, as $324 million outflows from the spot market outsized $30 million inflows to the futures market (Chart 10).

Foreign investors increased their positions in dollar futures

Non-residents increased their long positions in dollar futures by $3.2 billion. Other positions in FX derivatives were virtually unchanged. Non-residents, banks and institutional investors hold positions of $29 billion, $40 billion and $33 billion, respectively (Charts 11, 12, 13 and 14).


 



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