Itaú BBA - BRL weakens amid uncertainty in the U.S.

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BRL weakens amid uncertainty in the U.S.

November 7, 2016

With the U.S. elections approaching and rising uncertainties on the outcome, investors turned their backs on riskier assets

(full report attached)

Volatility spikes as U.S. elections near

With the November 8 elections in the U.S. approaching and rising uncertainties regarding its outcome, investors turned their backs on riskier currencies. The U.S. dollar appreciated against many currencies, including the Brazilian real. The exchange rate closed the week at 3.23 reais per dollar, slightly underperforming its peers (Charts 1, 2, 3 and 4).

Central bank maintained the pace of reverse swap auctions

The monetary authority maintained the amounts offered in reverse FX swap auctions at $250 million. Currently, its short position in FX swaps stands at $25 billion (Charts 5 and 6).

Stronger currency inflows in the last week of October

The currency flow was positive by $6.2 billion in October. Last week, there were $797 million trade inflows and $5.4 billion financial inflows, likely reflecting intakes tied to the repatriation program (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 $19 billion year-to-date vs. $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are negative

Foreign flows to the stock market are negative by $309 million in November, driven by $121 million outflows from the spot market and $188 million outflows from the futures market (Chart 10).

Investors changed their positions in FX derivatives

Non-residents increased their long position in dollar futures by $4.1 billion, while reducing their short position in cupom cambial by $4.6 billion. Institutional investors expanded their short position in dollar futures by $6.2 billion. Non-residents, banks and institutional investors hold positions of $12.6 billion, $24.6 billion and $ -8.5 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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