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BRL weakens amid political uncertainty

June 26, 2017

Non-approval of the labor reform by the Senate’s Social Affairs Committee pressured the BRL.

(full report attached)

Brazilian currency underperforms its peers

Non-approval of the labor reform by the Senate’s Social Affairs Committee refueled uncertainties regarding the approval of fiscal reforms, pressuring the Brazilian currency. The exchange rate closed the week at 3.34 reais per U.S. dollar, depreciating 1.52% from one week earlier and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank continues to roll over FX swap contracts expiring in July

Last week, the monetary authority continued to roll over FX swap contracts expiring in July, at a pace of 8,200 contracts per day, and announced that another auction will take place today. If this pace is sustained, contracts will be fully rolled over. The Central Bank’s stock of FX swaps now stands at $28 billion (Charts 5 and 6).

Currency outflows on June 12-16

The currency flow was negative last week, as $2.77 billion financial outflows outsized $674 million trade inflows. In June, the flow is negative by $3.4 billion (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 billion year-to-date vs. $11.5 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are positive in June

Foreign flows to the stock marketare positive by $206.8 million in June, as $749.4 million inflows to the futures market outsized $543.6 million outflows from the spot market (Chart 10).

Non-residents changed their positions in dollar futures

Last week, non-residents increased their short position in dollar futures by $1.5 billion. Non-residents, banks and institutional investors hold positions of $11.4 billion, $13.1 billion and $2.2 billion, respectively (Charts 11, 12, 13 and 14).


 



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