Itaú BBA - Expectations of Fed rate hike continue to pressure FX markets

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Expectations of Fed rate hike continue to pressure FX markets

March 13, 2017

Payroll figures pointing to solid growth in the U.S. labor market increased expectations of a rate hike by the Fed next week.

(full report attached)

U.S. payroll numbers raise expectations of monetary tightening

Payroll figures pointing to solid growth in the U.S. labor market increased expectations of a hike in the benchmark interest rate by the Federal Reserve next week. The exchange rate closed the week at 3.14 reais per U.S. dollar, depreciating 0.8% from one week earlier, performance in line with 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 intervene in the FX market. Its stock of FX swap contracts stands at $22 billion (Charts 5 and 6).

Currency inflows in March 1-3

In the first week of March, there were $269 million financial inflows and $1.1 billion trade inflows. Month-to-date, the flow is positive by $1.4 billion (Charts 7 and 8).

$2 billion in Brazilian bond offerings overseas last week 

Three external bond offerings took place last week. A pulp and paper company issued $300 million, while a beef processor issued $750 million. The government was responsible for the third placement, issuing $1 billion. Brazilian corporate bond offerings total $9.75 billion year-to-date (Chart 9 and table).   

Foreign flows to the stock market are negative

Foreign flows to the stock market are negative by $570 million in March, as $644 million outflows from the spot market outsized $74 million inflows to the futures market (Chart 10).

Non-residents changed their positions in dollar futures

Last week, non-residents increased their long position in dollar futures by $1.1 billion. Non-residents, banks and institutional investors hold positions of $12.5 billion, $16.5 billion and $ -7.1 billion, respectively (Charts 11, 12, 13 and 14).


 



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