Itaú BBA - Central bank reduces interventions in the FX market

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Central bank reduces interventions in the FX market

September 19, 2016

Central bank reduces interventions through reverse swap auctions

(full report attached)

International scenario put emerging market currencies under pressure last week

Falling oil prices and expectations for the U.S. Federal Reserve and Bank of Japan decisions created risk aversion last week, pressuring emerging market currencies. Domestically, the central bank reduced interventions in the FX market, which strengthened the BRL. The exchange rate closed the week at 3.26 reais per U.S. dollar and outperformed its peers (Charts 1, 2, 3 and 4).

Central bank reduced reverse swap auctions

Since Wednesday, September 14, the central bank reduced its reverse swap auctions to $250 million from $500 million. Auctions are still being carried out daily and another one was announced to take place today. Currently, the central bank’s short position in FX swap contracts stands at $36 billion (Charts 5 and 6).

Currency inflows in September

The currency flow is positive by $984 million in September, driven by $333 million trade inflows and $651 million financial inflows (Charts 7 and 8).

No Brazilian bond issuance abroad last week

Year-to-date, corporate issuances abroad total $15.5 billion, vs. $8 billion in 2015.  Including National Treasury issuances, Brazilian borrowings this year total $18.5 billion (Chart 9 and table).

Foreign flows to the stock market are negative

Foreign flows to the stock market are negative by $21 million in September, as $262 million outflows from the spot market outsized $241 million inflows to the futures market (Chart 10).

Non-residents increased their positions in dollar futures

Non-residents increased their long positions in dollar futures by $2.6 billion, while institutional investors increased their short positions by $400 million. Non-residents, banks and institutional investors hold positions of $19 billion, $30 billion and $ -3.6 billion, respectively (Charts 11, 12, 13 and 14).



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