Itaú BBA - Foreign Currency Outflows in 2014

FX and Capital Markets

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Foreign Currency Outflows in 2014

January 12, 2015

The Brazilian real and its peer currencies strengthened during the week

(full report attached)

Exchange rate closed the week at 2.633 reais per U.S. dollar

The Brazilian real and its peer currencies strengthened during the week, especially after the release of a report showing mixed numbers in the U.S. labor market. Average hourly earnings fell, but unemployment declined and 252K jobs were created in December 2014. The exchange rate closed the week at 2.63 reais per dollar, appreciating 2.33% relative to the previous week’s closing price (Charts 1, 2, 3 and 4).

The central bank reduced daily offers of FX swaps and continued to roll over contracts expiring in February 

The monetary authority sold $500 million in FX swaps last week, in line with the new amount to be offered daily that was announced in late December. Additionally, $2.5 billion in swap contracts maturing in February were rolled over, reducing the total amount due to $7.4 billion. If this pace is sustained until the end of the month, the central bank will roll over virtually the entire batch (96.1%) (Charts 5 and 6).

Negative currency flow in 2014

In December, the currency flow was negative by $14 billion, the worst result for the month since the beginning of the historical series in 1982. In 2014, net outflows totaled $9.3 billion, down from $12 billion in 2013 (Charts 7 and 8).

No new bonds issued abroad

No issuance was announced so far in January, as was the case in December (Chart 9 and table).

Foreign flows to the stock market are negative in January

Flows to the stock market are negative by $92 million in January, with outflows from the futures market (Chart 10).

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

Non-residents increased their positions in FX derivatives (dollar futures, cupom cambial and swaps) to $33.4 billion, while banks and institutional investors reduced their positions to $41.4 billion and $32 billion, respectively (Charts 11 and 12).

Net outflows from equity funds and inflows to fixed income funds last week 

During the first week of 2015, equity funds dedicated to Brazil posted $288 million in net outflows. Meanwhile, fixed income funds had $9.1 million in inflows, after seven consecutive weeks of outflows (Charts 13 and 14).

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