Itaú BBA - BRL weakens and closes the week above 3.60

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BRL weakens and closes the week above 3.60

May 30, 2016

Despite the announcement of fiscal adjustment measures by the Brazilian government, the exchange rate depreciated 2.50%

(full report attached)

Brazilian currency depreciated last week 

As U.S. Federal Reserve members signaled the possibility of a rate hike in June, the dollar strengthened and pressured emerging market currencies. Despite the announcement of fiscal adjustment measures by the Brazilian government, the exchange rate depreciated 2.50% and closed the week at 3.61 reais per dollar, underperforming its peers (Charts 1, 2, 3 and 4).

Central bank reduces interventions in the FX market 

The monetary authority did not offer reverse FX swap contracts last week. In May, the central bank reduced its short position in swaps by $6.9 billion (Charts 5 and 6).

Currency outflows in May 

Financial outflows remain quite hefty during the month. In May, there have been $9.8 billion financial outflows and $5.7 billion trade inflows (Charts 7 and 8).

Another new bond placement last week  

A beef company issued $750 million in bonds expiring in 2023. Total bond issuances overseas total $9.5 billion in 2016, 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 in May, driven by $478 million outflows from the spot market and $260 million outflows from the futures market (Chart 10).

Investors changed their positions in FX derivatives

Foreign investors reduced their positions in dollar futures by $2.4 billion, while institutional investors increased their positions by $1.1 billion. Foreign investors also reduced their positions in cupom cambial by $1.2 billion. Non-residents, banks and institutional investors hold positions of $22 billion, $41 billion and $18 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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