Itaú BBA - Concerning domestic scenario weakens the BRL

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Concerning domestic scenario weakens the BRL

August 28, 2017

Domestic uncertainties later pressured the exchange rate, which closed the week at 3.16 reais per U.S. dollar

(full report attached)

Despite gains early in the week, the Brazilian currency depreciated later on

Optimism following privatization plan announcements and expectations that the long-term rate TLP would be approved fueled gains in the BRL earlier in the week. However, domestic uncertainties later pressured the exchange rate, which closed the week at 3.16 reais per U.S. dollar, depreciating 0.35% and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $28 billion (Charts 5 and 6). 

Currency flows remain positive in August

The currency flow was positive on August 14-18, driven by $381 million financial inflows and $526 million trade inflows. Month-to-date, the flow is positive by $3.4 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian corporate bond offerings total $16.3 billion year-to-date vs. $17.7 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are negative in August

Foreign flows to the stock market are negative by $1.0 billion in August, as $1.9 billion outflows from the futures market outsized $925 million inflows to the spot market (Chart 10).

Non-residents reduced their positions in dollar futures

Last week, non-residents reduced their long position in dollar futures by $1.8 billion. Non-residents, banks and institutional investors hold positions of $14.0 billion, $13.4 billion and - $1.1 billion, respectively (Charts 11, 12, 13 and 14).


 



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