Itaú BBA - Central bank reduces the FX swap rollover pace for the 2nd time in the month

FX and Capital Markets

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Central bank reduces the FX swap rollover pace for the 2nd time in the month

June 22, 2015

Fed’s signaling reduced dollar strength and the real appreciated last week, despite the reduction in the FX swap rollover pace.

(full report attached)

Fed’s signaling reduced dollar strength and the  real appreciated last week.

The real appreciated over the past week, despite the reduction in the FX swap rollover pace. The Fed’s signaling of gradual rate hikes in the US reduced the global strength of the dollar. The exchange rate closed the week at 3.10 reais per dollar, strengthening 0.7%, a better performance than peer currencies (Charts 1, 2, 3 and 4).

Central bank reduced the rollover pace for contracts expiring in July again.

The Brazilian Central Bank (BCB) reduced the rollover of US$ 8.7 billion swap contracts maturing in July, from a pace of 6300 contracts/day to 5200 contracts/day. If the new pace is maintained until the end of the month, the monetary authority will roll over 70% of the total batch and will decrease its short position in FX swaps by US$ 2.6 billion (Charts 5 and 6).

Currency outflows in June.

The currency flow was negative at US$ 1 billion in the second week of June, with commercial outflows of US$ 415 million and financial outflows of US$ 614 million. Month-to-date, the currency flow in June is negative at US$ 647 million (Charts 7 and 8).

No new bond issue abroad last week.

Unlike the previous week, there was no new bond issued by Brazilian companies in foreign markets. Month-to-date, issuances in June add up to US$ 5 billion (Chart 9 and Table).

Foreign flows to the stock market are positive in June.

Foreign flows into the stock market are positive at US$ 458 million, with outflows from the futures market and inflows into the spot market (Chart 10).

Non-resident investors reduced their long positions in FX derivatives.

Non-residents investors reduced their long positions in FX derivatives (especially dollar futures) to US$ 36.5 billion. Banks and institutional investors, on the other hand, increased their long positions to US$ 41.3 billion and US$ 28.2 billion, respectively (Charts 11, 12, 13 and 14).



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