Itaú BBA - Central bank reduced interventions in the FX market

FX and Capital Markets

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Central bank reduced interventions in the FX market

August 22, 2016

The amount of reverse swap contracts auctioned last week was reduces to $500 million from $750 million.

(full report attached)

Exchange rate traded around 3.20-3.25 reais per U.S. dollar last week

The Brazilian currency depreciated during almost the whole week. On Friday, as the central bank reduced offers of reverse swap contracts, the real rebounded. Nevertheless, the real closed the week at 3.21, 0.4% weaker than on the previous Friday (Charts 1, 2, 3 and 4).

Central bank reduced amounts offered in reverse swap auctions

The monetary authority reduced the amounts of reverse swap contracts auctioned last week to $500 million from $750 million. Currently, the central bank’s short position in FX swap contracts stands at $44 billion. If this pace is sustained, the monetary authority will zero the outstanding amount of FX swaps by year-end (Charts 5 and 6).

Currency outflows in August

The currency flow was negative by $2 billion in the two first weeks of the month, as $2.3 billion financial outflows outsized $305 million trade inflows (Charts 7 and 8).

No Brazilian bond issuance abroad last week

There were no bond offers by Brazilian companies overseas last week. Year-to-date, issuances abroad total $17.7 billion, vs. $8 billion in 2015. (Chart 9 and table).

Foreign flows to the stock market are slightly positive

Foreign flows to the stock market are positive by $54 million in August, as $326 million inflows to the futures market outsized $272 million outflows from the spot market (Chart 10).

Investors maintained their positions in FX derivatives

Investors kept their positions in FX derivatives virtually unchanged last week. Non-residents, banks and institutional investors hold positions of $21 billion, $33 billion and $1 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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