Itaú BBA - Domestic and international drivers pressure the BRL

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Domestic and international drivers pressure the BRL

November 28, 2016

The exchange rate closed the week at 3.41 reais per U.S. dollar, underperforming its peers

(full report attached)

Brazilian currency underperformed its peers last week

Improved data on the U.S. economy released mid-week boosted expectations of greater monetary tightening by the Federal Reserve. On Friday, political uncertainties created instability and weakened the Brazilian currency. The exchange rate closed the week at 3.41 reais per U.S. dollar, underperforming its peers (Charts 1, 2, 3 and 4).

Central bank finished the rollover of contracts expiring in December 

Last week, the central bank completed the rollover of contracts expiring in December. The central bank’s short position in FX swaps stands at $27 billion (Charts 5 and 6).

Currency inflows last week 

Last week, $1.7 billion financial inflows outsized $245 million trade outflows. Month-to-date, the currency flow is positive by $2.4 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 $19 billion year-to-date vs. $8 billion in 2015 (Chart 9 and table).    

Foreign flows to the stock market are negative 

Foreign flows to the stock market are negative by $730 million in November, as $833 million outflows from the spot market offset $103 million inflows to the futures market (Chart 10).

Institutional investors changed their positions in dollar futures

Institutional investors reduced their short position in dollar futures by $1.2 billion. Non-residents, banks and institutional investors hold positions of $13.2 billion, $21.5 billion and $ -3.3 billion, respectively (Charts 11, 12, 13 and 14).


 

 



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