Itaú BBA - Daily Offers of FX Swap Contracts Reduced to $100 Million

FX and Capital Markets

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Daily Offers of FX Swap Contracts Reduced to $100 Million

January 5, 2015

The currency market waited for the Central Bank to define the renewal of its swap program.

(full report attached)

Exchange rate closed 2014 at 2.658 reais per U.S. dollar.

During another week marked by holidays, low liquidity and slow news, the currency market waited for the Central Bank to define the renewal of its swap program. The Brazilian real closed the week at 2.694 per dollar, weakening 0.94% from the previous week’s closing price, in line with its peer currencies (Charts 1, 2, 3 and 4).

The central bank announced the extension of its FX swap program, but with reduced volumes.

The monetary authority will offer $100 million in FX swap contracts daily until March 31, 2015. In addition to shortening the program’s duration (renewal for three months, while previous renewals lasted six months), the central bank also reduced the daily allotment from $200 million until December 31, 2014. The monetary authority also announced the rollover of contracts maturing in February at a pace of 10,000 contracts per day. If this pace is sustained until the end of the month, the Central Bank will roll over virtually the entire batch (96.1%) (Charts 5 and 6).

Currency outflows in December.

For another week, the contracted currency flow was negative, with $3.8 billion in net outflows from the financial account and $77 million in inflows to the trade account. Outflows in December add up to $10.8 billion (Charts 7 and 8).

No new bond issuance overseas.

No new issuance was announced in December (Chart 9 and table).

Foreign flows to the stock market remain negative in December.

Flows to the stock market were negative by $1.2 billion in December, with outflows from both the futures and spot markets (Chart 10).

Institutional investors and non-residents increased their long positions in FX derivatives last week.

Non-residents and institutional investors increased their positions in FX derivatives (dollar futures, cupom cambial and swaps) to $28.7 billion and $34.5 billion, respectively (Charts 11 and 12).

Outflows from funds dedicated to Brazil in the last week of the year and in 2014.

The last week of the year was once again marked by outflows from funds dedicated to Brazil. During 2014 there were $3.6 billion in outflows from fixed income funds and $2.1 billion in outflows from equity funds (Charts 13 and 14).



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