Itaú BBA - Central Bank announced rollover of 80% of FX swap contracts

FX and Capital Markets

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Central Bank announced rollover of 80% of FX swap contracts

June 1, 2015

The central bank will, once again, roll over 80% of the total batch (if the pace is sustained) and will reduce its short position in FX swaps by $1.7 billion.

(full report attached)

Brazilian currency remained under pressure in the past week.

The real depreciated during the week, closing near its high, at 3.18 reais per U.S. dollar. Domestically, uncertainties about the approval of provisional measures in the congress regarding the fiscal adjustment contributed to the move. Internationally, positive figures for the manufacturing and real estate industries in the U.S. also pressured the exchange rate. The Brazilian currency weakened 2.7%, underperforming its peers (Charts 1, 2, 3 and 4).

Central bank ended the rollover of June contracts and announced the beginning of the rollover of July contracts.

The monetary authority finished the rollover of 80% of swap contracts due in June, allowing $1.96 billion to expire. The central bank announced the beginning of the rollover of July contracts at a pace of 7,000 contracts per day. If this pace is sustained until the end of the month, the monetary authority will, once again, roll over 80% of the total batch and will decrease its short position in FX swaps by $1.7 billion (Charts 5 and 6).

Positive currency flow in the third week of May.

The currency flow was positive by $780 million in the third week of May, with $368 million in financial outflows and $1.1 billion in trade inflows. Available data for the month show that the contracted currency flow in May is negative by $796 million (Charts 7 and 8).

No new bond issue abroad in the past week.

During the past week, there was no Brazilian bond issue in international markets. Issuances added up to $1.6 billion in May and $2 billion year-to-date (Chart 9 and table).

Foreign flows to the stock market are positive in May.

Foreign flows to the stock market are positive by $481 million in May, with inflows to the spot market, but outflows from the futures market (Chart 10).

Non-resident investors increased their long FX derivatives positions.

During the past week, non-residents increased their long positions in dollar futures and cupom cambial by $3.8 billion to $42.2 billion. Meanwhile, institutional investors and banks reduced their long positions to $28.7 billion and $35.6 billion, respectively (Charts 11, 12, 13 and 14).


 



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