Itaú BBA - Central bank hasn’t announced full roll over of FX swap contracts

FX and Capital Markets

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Central bank hasn’t announced full roll over of FX swap contracts

March 2, 2015

The depreciating trend in the Brazilian real was interrupted by the announcement of new fiscal tightening measures on Friday.

(full report attached)

Exchange rate weakened beyond 2.90 reais per U.S. dollar, but rebounded later in the week

During the past week, the depreciating trend in the Brazilian real was interrupted by the announcement of new fiscal tightening measures on Friday. The exchange rate closed at 2.84 reais per dollar, strengthening 1.0% from the previous week’s closing price (Charts 1, 2, 3 and 4).

Central bank finished rolling over contracts expiring in March and began rollovers for the following month

The monetary authority rolled over virtually the full batch of FX contracts maturing in March and already announced the beginning of the rollover of contracts due in April. If the pace of 7,400 contracts per day is sustained until the end of the month, the central bank will roll over 78% of the entire batch, a smaller share than in the past seven months (Charts 5 and 6).

Currency flow was positive in the past week 

During the third week of February, the currency flow was positive by $1.7 billion, with $180 million in trade inflows and $1.6 billion in financial inflows. The flow is positive by $2.2 billion month-to-date (Charts 7 and 8).

No new bond issuance overseas in the past week 

Another week without any bond issuances in the external market. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market are still positive in February

Flows to the stock market are positive by $2.1 billion, with inflows to the spot and futures markets (Chart 10).

Non-residents and institutional investors reduced their long FX derivatives positions last week

In the past week, non-residents reduced their long positions in FX derivatives (dollar futures in particular) to $40 billion. Institutional investors are now short in dollar futures, so that their total long position in FX derivatives declined to $31.4 billion (Charts 11, 12 and 13).

Inflows to equity and fixed income funds dedicated to Brazil after a few months

During the week ended on February 25, there were net inflows to equity funds ($51 million) and fixed income funds ($174 million) (Charts 14 and 15).



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