Itaú BBA - Currency flow in positive territory

FX and Capital Markets

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Currency flow in positive territory

October 15, 2018

BRL outperformed its peers and closed the week at 3.78

(full report attached)
 

BRL outperformed its peers and closed the week at 3.78

Late last week, investor caution with the global scenario sparked risk aversion and pressured emerging market currencies. In Brazil, the exchange rate strengthened to as much as 3.70 reais per dollar on Tuesday but ended the week at 3.78. Still, the Brazilian currency appreciated 1.54% during the week and outperformed its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market last week

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just carried out the rollover of contracts expiring in November. Its stock of FX swaps now stands at $69 billion (Charts 5 and 6).

Currency inflows in early October 

After consecutive weeks of outflows, the financial flow was positive in the first week of the month, when $3.5 billion financial inflows offset $414 million trade outflows (Charts 7 and 8).

No external bond issuances last week

There were no issuances by Brazilian companies abroad last week. Year-to-date, Brazilian bond offerings overseas total $16.6 billion (Chart 9 and table).

Foreign flows to the stock market are negative in October

Foreign flows to the stock market are negative by $2.5 billion this month, driven by $3.1 billion outflows from the futures market (Chart 10).

Institutional investors reduced their position in dollar futures

Institutional investors reduced their position in dollar futures by $1.8 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $38.3 billion, $14.0 billion and $14.2 billion, respectively (Charts 11, 12, 13 and 14).



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