Itaú BBA - Central bank intensifies interventions in the FX market

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Central bank intensifies interventions in the FX market

September 28, 2015

Brazilian Real reaches new lows and Central Bank increases its intervention on FX market.

(full report attached)

Exchange rate weakened beyond 4.18 reais per U.S. dollar, but closed the week at 3.97.

Domestic uncertainties, particularly about the dynamics of public accounts, pushed the Brazilian real to new lows last week. However, the central bank intensified its interventions and the currency rebounded. The exchange rate closed the week at 3.97, depreciating 0.62% during the week and outperforming its peers (Charts 1, 2, 3 and 4).

Central bank intensified interventions in the FX market

During the past week, the central bank carried out four FX swap auctions (totaling $3.2 billion) and three line auctions (two of $2 billion each on Wednesday and one involving $1 billion on Friday). Additionally, the central bank sustained the full rollover of swap contracts expiring in October (Charts 5 and 6).

Currency flow is positive in September

The currency flow was positive last week, with $186 million in trade inflows and $714 million in financial inflows. Hence, the flow in September is positive by $383 million (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. Year-to-date, issuances add up to $8 billion (Chart 9 and table).

Foreign flows to the stock market are slightly negative

Foreign flows to the stock market are negative by $252 million in September, with $295.5 million in outflows from the futures market outsizing $44 million in inflows to the spot market (Chart 10).

Institutional and non-resident investors changed their positions in dollar futures last week

Institutional investors reduced their short positions in dollar futures, while foreign investors reduced their long positions. There was no relevant change in other FX derivatives. The positions of non-residents, banks and institutional investors in FX derivatives stand at $31 billion, $43 billion and $25 billion, respectively (Charts 11, 12, 13 and 14).


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