Itaú BBA - BRL underperformed its peers last week

FX and Capital Markets

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BRL underperformed its peers last week

November 6, 2017

The exchange rate closed the week at 3.31 reais per dollar, depreciating 2.4%

(full report attached)
 

U.S. economy data and domestic environment pressured the exchange rate

October’s PMI Composite Index and upward revisions in nonfarm payrolls in August and September consolidated the view of robust growth in the U.S., strengthening the dollar and pressuring emerging market currencies. Domestic uncertainties, particularly regarding the progress of the pension reform in Congress, also weakened the BRL. The exchange rate closed the week at 3.31 reais per dollar, depreciating 2.4% and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6).

Currency inflows in October

The currency flow remains positive in October, boosted by $51 million financial inflows and $1.4 billion trade inflows last week. During the month, the flow is positive by $3.5 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian bond offerings total $26.5 billion year-to-date, topping the $20.4 billion issued during 2016 as a whole (Chart 9 and table).   

Foreign flows to the stock market are negative in October

Foreign flows to the stock market are negative by $1.4 billion during the month, driven by $809 million outflows from the futures market and $587 million outflows from the spot market (Chart 10).

Non-residents reduced their position in dollar futures

Last week, non-residents reduced their long position in dollar futures by $2.3 billion to $3.3 billion. Meanwhile, institutional investors expanded their short position in cupom cambial by $1.1 billion to $8.0 billion. Non-residents, banks and institutional investors hold positions of  $18.0 billion, $11.5 billion and $ -6.2 billion, respectively (Charts 11, 12, 13 and 14).



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