Itaú BBA - Central bank reduces the FX swap rollover pace

FX and Capital Markets

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Central bank reduces the FX swap rollover pace

July 6, 2015

Central bank slowed down the rollover pace of August contracts. If the new pace is maintained until the end of the month, the means rollover of 60%.

(full report attached)

Exchange rate continued to trade in a range between 3.10 and 3.15 reais per U.S. dollar.

During the past week, uncertainties surrounding an agreement in Greece and U.S. labor market data added volatility to FX markets. The Brazilian currency closed the week at 3.13 reais per dollar, weakening a bit by 0.2%, slightly outperforming its peers (Charts 1, 2, 3 and 4).

Central bank slowed down the rollover pace of August contracts.

The monetary authority started to roll over the $10.7 billion in FX contracts expiring in August, at a pace of 7,100 contracts per day. Last Thursday, however, the central bank slowed down the pace to 6,000 contracts per day. If the new pace is maintained until the end of the month, the monetary authority will roll over 60% of the total batch and will decrease its short position in FX swaps by $4.3 billion (Charts 5 and 6).

Currency flow remains negative in June.

Once again, the currency flow was negative. In the week outflows totaled $1 billion, with $2.3 billion in financial outflows and $1.3 billion in trade inflows. So far, the currency flow in June is negative by $3.9 billion (Charts 7 and 8).

No external bond issuance last week.

No bonds were issued by Brazilian companies overseas, unlike the previous week. June issuances add up to $5 billion (Chart 9 and table).

Foreign flows to the stock market were positive in June.

Foreign flows to the stock market were positive by $924 million in June, with inflows to the spot market and outflows from the futures market (Chart 10).

Institutional and foreign investors reduced their long FX derivatives positions.

Institutional investors increased their positions in dollar futures, while reducing their positions in cupom cambial. Non-residents lowered their positions in dollar futures, while raising their positions in cupom cambial. Hence, both reduced their long positions in FX derivatives, to $22.6 billion in case of institutional investors and $36 billion in the case of non-residents (Charts 11, 12, 13 and 14).



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