Itaú BBA - Exchange Rate Traded Around 3.00 Reais per U.S. Dollar

FX and Capital Markets

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Exchange Rate Traded Around 3.00 Reais per U.S. Dollar

May 18, 2015

Brazilian currency continued to trade around 3.00 reais per U.S. dollar.

(full report attached)

Brazilian currency continued to trade around 3.00 reais per U.S. dollar.

The real depreciated early in the week due to the difficulty of approval of fiscal measures. However, weaker U.S. figures kept the exchange rate close to 3.00 reais per dollar throughout the week. The exchange rate closed the week at 3.00, down by 0.74% from the previous week’s closing price (Charts 1, 2, 3 and 4).

Central bank continued to roll over contracts expiring in June.

The monetary authority continued to roll over $9.7 billion in FX swap contracts expiring in June, at a pace of 8,100 contracts per day. If this pace is sustained until the end of the month, the central bank will roll over 80% of the total batch and will decrease its short position in FX swaps by $1.96 billion (Charts 5 and 6).

Negative currency flow in the first week of May.

After several weeks in positive territory, the currency flow was negative by $2.6 billion in the first week of May, with $3.2 billion in financial outflows and $634 million in trade inflows (Charts 7 and 8).

No new bond issue abroad in the past week.

Unlike the previous week, there was no bond issue by Brazilian companies in international markets. Year-to-date, issuances add up to less than $1 billion (Chart 9 and table).

Foreign flows to the stock market are positive in May.

Foreign flows to the stock market are positive by $641 million in May, with inflows to the spot market, but outflows from the futures market (Chart 10).

Foreign investors, institutional investors and banks kept their total positions in FX derivatives virtually unchanged.

During the last week, non-residents, institutional investors and banks maintained their long positions in FX derivatives virtually unchanged at $39.3 billion, $38.1 billion and $28.7 billion, respectively. However, the composition of these positions did change. While non-residents and banks increased their positions in dollar futures and reduced their positions in cupom cambial, institutional investors acted in the opposite direction, raising their positions in cupom cambial and reducing their positions in dollar futures (Charts 11, 12, 13 and 14).



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