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BRL weakens sharply amid political uncertainties

May 22, 2017

Last week, political headlines created great instability in financial markets.

(full report attached)

Political situation pressured the exchange rate 

Last week, political headlines created great instability in financial markets. The uncertainties regarding the approval of the pension reform and Brazil’s fiscal stability have increased. The exchange rate closed at 3.25 reais per U.S. dollar on Friday, having reached 3.40 earlier in the week. The BRL depreciated 4.1% during the week, marking its worst weekly performance since November 2016 (Charts 1, 2, 3 and 4).

Central bank resumes offers of FX swap contracts

Last week, the monetary authority started to roll over FX swap contracts expiring in May, at a pace of 8,000 contracts per day. It also offered 80,000 such contracts on Thursday and announced daily auctions of 40,000 swap contracts on May 19-23. Its outstanding amount of FX swap contracts now stands at $24 billion (Charts 5 and 6).

Currency outflows on May 08-12

The currency flow was negative during the second week of May, as $205 million financial outflows outsized $68 million trade inflows. Month-to-date, the flow is positive by $502 million (Charts 7 and 8).

$4 billion raised in the external bond market last week

An oil & gas enterprise issued bonds with different maturity dates last week, totaling $4 billion. Brazilian corporate bond offerings total $15.7 billion year-to-date vs. $9 billion one year ago (Chart 9 and table).   

Foreign flows to the stock market are positive

Foreign flows to the stock market are positive by $1 billion as of May 17, driven by $242 million inflows to the spot market and $790 million inflows to the futures market (Chart 10).

Investors changed their positions in dollar futures

Last week, non-residents reduced their long position in dollar futures by $1.7 billion, while institutional investors cut their short position in dollar futures by $1.2 billion. Non-residents, banks and institutional investors hold positions of $9.9 billion, $9.8 billion and $ -3 billion, respectively (Charts 11, 12, 13 and 14).


 



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