Itaú BBA - BRL weakens amid domestic and international uncertainties

FX and Capital Markets

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BRL weakens amid domestic and international uncertainties

August 14, 2017

Brazilian currency underperformed its peers amid rising international and domestic uncertainties

(full report attached)

Brazilian currency underperformed its peers

Rising international uncertainty following increased tensions between the U.S. and North Korea fueled risk aversion, pressuring emerging market currencies. Domestically, noise surrounding the fiscal policy also contributed to weaken the BRL. The exchange rate closed the week at 3.19 reais per U.S. dollar, depreciating 1.94% from the previous week 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 $28 billion (Charts 5 and 6). 

Thin currency inflows in the first week of August 

In July, the currency flow was negative by $2.6 billion. On July 31-August 4, $1.3 billion trade inflows outsized $943 million financial outflows (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 $16.3 billion year-to-date vs. $17.7 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are negative in August

Foreign flows to the stock market are negative by $611 million in August, as $865 million outflows from the futures market outsized $254 million inflows to the spot market (Chart 10).

Non-residents increased their position in dollar futures

Last week, non-residents expanded their long position in dollar futures by $1.2 billion. Non-residents, banks and institutional investors hold positions of $16.7 billion, $12.2 billion and - $1.2 billion, respectively (Charts 11, 12, 13 and 14).


 



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