Itaú BBA - BRL weakens on political uncertainty

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BRL weakens on political uncertainty

March 27, 2017

Uncertainty about the approval of the pension reform and the increase in the country risk premium pressured the BRL last week

(full report attached)

Brazilian currency underperformed its peers during the week 

Greater uncertainty about the approval of the pension reform and the increase in the country risk premium pressured the currency last week. The exchange rate closed the week at 3.11 reais per U.S. dollar, weakening 0.5% from a week earlier and underperforming its peers (Charts 1, 2, 3 and 4).

Central bank continues to roll over swap contracts due in April

Last week, the monetary authority continued to roll over contracts due in April, at a pace of 10,000 contracts per day. If this pace is sustained until the end of the month, the central bank will allow $4.2 billion to expire. The outstanding amount of FX swap contracts now stands at $22 billion (Charts 5 and 6).

Currency outflows on March 13-17 

Between March 13 and 17, $1280 million financial outflows outsized $1196 million trade inflows. In March, the currency flow is positive by $3.5 billion (Charts 7 and 8).

Brazilian company raised $200 million abroad last week

A communications company issued $200 million in external bonds last week. Brazilian corporate bond offerings total $2.25 billion month-to-date and $10 billion year-to-date (Chart 9 and table).   

Foreign flows to the stock market are negative

Foreign flows to the stock market arenegative by $1.38 billion in March, driven by $920 million outflows from the spot market and $460 million outflows from the futures market (Chart 10).

Institutional investors reduced their position in dollar futures

Last week, institutional investors reduced their short position in dollar futures by $1 billion. Non-residents, banks and institutional investors hold positions of $10.6 billion, $16 billion and $ -5.1 billion, respectively (Charts 11, 12, 13 and 14).


 



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