Itaú BBA - Central bank maintained the pace of FX swap rollovers

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Central bank maintained the pace of FX swap rollovers

August 3, 2015

Another week of exchange rate depreciation. But the central bank maintained the pace of FX swap rollovers.

(full report attached)

Another week of exchange rate depreciation 

The real weakened for another week, particularly after S&P lowered Brazil’s ratings outlook to negative from stable. The currency ended the week at 3.42 reais per U.S. dollar, depreciating 1.9% and underperforming its peers (Charts 1, 2, 3 and 4).

But the central bank maintained the pace of FX swap rollovers

The monetary authority concluded the rollover of $10.7 billion in swap contracts due in August, allowing the expiration of $4.3 billion. The central bank also announced the beginning of the rollover of contracts due in September. If the pace of 6,000 contracts per day is maintained until the end of the month, the monetary authority will roll over 60% of the total batch (same pace as in the last month) and will decrease its FX swap position by $4.0 billion (Charts 5 and 6).

Currency flow remains negative in July

The currency flow was virtually balanced out in the past week. In July, the flow is negative by $2.3 billion, with financial outflows ($5.5 billion) outsizing trade inflows ($3.2 billion) (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 negative in July

Foreign flows to the stock marketare negative by $496 million in July, with outflows from the spot and futures markets (Chart 10).

Foreign and institutional investors reduced their long positions in FX derivatives

Non-resident and institutional investors reduced their long positions in FX derivatives to $37.0 billion and $22.4 billion, respectively, reversing the increases of the previous week. Banks expanded their positions to $43.5 billion (Charts 11, 12, 13 and 14).



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