Itaú BBA - Domestic and International Drivers Support the Real

FX and Capital Markets

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Domestic and International Drivers Support the Real

April 20, 2015

The real extended the strengthening trend of the previous weeks, due to domestic and international factors

(full report attached)

Brazilian currency extended the good performance of recent weeks.

The real extended the strengthening trend of the previous weeks, due to weaker economic data in the U.S., some recovery in commodity prices and expectations surrounding the release of Petrobras audited earnings. The currency closed the week at 3.04 reais per U.S. dollar, after touching 3.00 on Thursday, appreciating 1.1% from the previous week’s closing price (Charts 1, 2, 3 and 4).

Central bank continued to act in the same way in the foreign exchange market.

The monetary authority continued to roll over the $10.1 billion expiring in May at a pace of 10,600 contracts per day. Full rollover ensures that the FX swap stock remains constant at $113 billion (Charts 5 and 6).

Currency flow is positive in April.

The currency flow is positive by $969 million in April, with continuing financial inflows ($1.7 billion last week); while trade inflows remain close to zero (Charts 7 and 8).

No new bond issuance overseas in the past week.

Another week passed without any bond issuances in the external market. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market remain positive in April.

Foreign flows to the stock market are positive by $2.2 billion in April, with inflows to the futures and spot markets (Chart 10).

Foreign and institutional investors increased their long FX derivatives positions.

During the past week, non-resident and institutional investors marginally increased their long FX derivatives positions to $38.6 billion and $28.9 billion, respectively. Banks, meanwhile, reduced their positions to $40.4 billion (Charts 11, 12, 13 and 14).



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