Itaú BBA - BRL weakens on rising global volatility

FX and Capital Markets

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BRL weakens on rising global volatility

February 14, 2018

The global scenario broke its benign period last week and increased instability pressured emerging market currencies

(full report attached)
 

Emerging market currencies depreciated amid instability in global markets

The global scenario broke its benign period last week and emerging market currencies depreciated driven by outflows to developed economies. The exchange rate closed the week at 3.30 reais per U.S. dollar, losing 2.5% and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank resumed interventions in the FX market

The monetary authority rolled over FX swap contracts once again. If the daily pace of 9,500 contracts is sustained until the end of the month, contracts expiring in March will be fully rolled over. The Central Bank’s stock of FX swaps now stands at $24 billion (Charts 5 and 6). 

Currency flow is positive by $8.1 billion in January

The currency flow was positive by $8.1 billion in January, driven by $5.5 billion financial inflows and $2.5 billion trade inflows. As of early February, the flow is positive by $1.2 billion (Charts 7 and 8).

New bond offerings abroad

Brazilian companies carried out bond offerings abroad last week. An airline company, a financial institution and a steel enterprise placed a total of $1.0 billion in bonds (Chart 9 and table).

Foreign flows to the stock market are negative in early February

Foreign flows to the stock market are negative by $362 million in February, as $593 million outflows from the spot market outsized $230 million inflows to the futures market (Chart 10).

Non-residents increased their position in dollar futures 

Last week, non-residents increased their position in dollar futures by $4.4 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $20.4 billion, $9.0 billion and $ -5.3 billion, respectively (Charts 11, 12, 13 and 14).



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