Itaú BBA - Foreign currency Inflows in January

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Foreign currency Inflows in January

February 9, 2015

The Brazilian real depreciated and underperformed its peers last week

(full report attached)

Exchange rate weakens beyond 2.70 reais per U.S. dollar

The Brazilian real depreciated and underperformed its peers last week. On Friday, the release of stronger data on the U.S. labor market intensified the move observed all week long. The exchange rate closed the week at 2.78 reais per dollar vs. 2.68 in the previous week (Charts 1, 2, 3 and 4).

Central bank continued to roll over contracts expiring in March 

The monetary authority continued to roll over contracts expiring in March at a pace of 13,000 contracts per day. If this pace is sustained until the end of the month, the central bank will roll over virtually the entire batch (Charts 5 and 6).

Positive currency flow in January

The currency flow was once again positive in the last week of January, with $3.2 billion in net inflows. Hence, the currency flow in January was positive by $3.9 billion, led by $4.1 billion in net financial inflows (Charts 7 and 8).

After a few months, new bond issuances announced

After two months without any Brazilian bond issuances abroad, two placements were announced by a financial institution, adding up to $400 million and expiring in 2018 and 2020 (Chart 9 and table).

Foreign flows to the stock market were negative in January

Flows to the stock market were negative by $469 million in January. However, the flow is positive by $170 million in February (Chart 10).

Non-residents increased their long positions in FX derivatives for another week

Non-residents increased their positions in FX derivatives, particularly dollar futures, to $38.7 billion. Institutional investors reduced their positions in dollar futures and swaps, while raising their positions in cupom cambial contracts, so that their derivatives position was virtually flat (Charts 11, 12 and 13).

Another week of net outflows from equity and fixed income funds dedicated to Brazil

During the week ended on February 4, there were net outflows of $73 million from equity funds and $110 million from fixed income funds dedicated to Brazil, marking a fourth consecutive week of outflows from both types of funds (Charts 14 and 15).



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