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BRL weakens and central bank increases interventions in the FX market

November 14, 2016

BRL weakens due to uncertainties regarding the next U.S. administration and central bank intervenes to reduce volatility

(full report attached)

BRL weakens due to uncertainties regarding the next U.S. administration 

After a surprising result in the U.S. election and rising uncertainties surrounding the policies of the next U.S. administration, investors went on risk-off mode. Hence, the Brazilian currency and its peers depreciated against the greenback. The exchange rate closed the week at 3.40 reais per U.S. dollar, the weakest since June, in line with its peers (Charts 1, 2, 3 and 4).

Central bank intervenes in the FX market to reduce volatility 

Facing heightened volatility due to the U.S. presidential election, the central bank resumed interventions in the FX market. Firstly, it interrupted reverse swap auctions, then announced the rollover of swap contracts expiring in December, and finally, on Friday, announced an auction of $1 billion in FX swap instruments. The central bank’s short position in FX swaps increased to $25 billion (Charts 5 and 6).

Currency outflows during the first week of November 

Currency flows are negative by $334 million in November. Last week, $1.2 billion financial outflows outsized $860 million trade inflows (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).

Negative foreign flows to the stock market 

Foreign flows to the stock market are negative by $363 million in November, as $448 million outflows from the spot market outsized $85 million inflows to the futures market (Chart 10).

Investors changed their positions in FX derivatives

Non-residents increased their long position in dollar futures by $1.2 billion. Institutional investors reduced their short position in dollar futures by $1.7 billion. Non-residents, banks and institutional investors hold positions of $14.2 billion, $22.5 billion and $ -8.0 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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