Itaú BBA - Central bank reduces FX swap rollovers and announces reverse FX swap auction

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Central bank reduces FX swap rollovers and announces reverse FX swap auction

March 21, 2016

Slightly weaker BRL during a week of political turmoil.

(full report attached)

Slightly weaker BRL last week

The Brazilian currency depreciated 1.1% and underperformed its peers during a week of political turmoil. The exchange rate closed the week at 3.62 reais per U.S. dollar (Charts 1, 2, 3 and 4).

Central bank reduced FX swap rollovers and announced reverse FX swap auction

On Thursday, March 17, the monetary authority announced a smaller rollover volume of FX swap contracts due in April: to 3,600 contracts per day from 9,600. If this pace is sustained until the end of the month, 75% of contracts will be rolled over and $2.5 billion in contracts will expire. On Friday, the central bank announced a 20,000 reverse FX swap contracts ($1 billion) auction to be carried out today (Charts 5 and 6).

Currency flow was negative last week

The currency flow was negative in the second week of March, as $841 million financial outflows outsized $38 million trade inflows. During the month, the flow is positive by $191 million (Charts 7 and 8).

No external bond issuance by Brazilian companies last week

There were no issuances this year. Issuances added up to $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are positive

Foreign flows to the stock market remain positive in March. Month-to-date, there were $328 million outflows from the futures market and $1.6 billion inflows to the spot market (Chart 10).

Investors reduced their positions in dollar futures

Non-residents and institutional investors reduced their positions in dollar futures by $458 million and $1.8 billion, respectively. Foreign investors, banks and institutional investors hold positions of $24 billion, $51 billion and $25 billion, respectively (Charts 11, 12, 13 and 14).


 



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