Itaú BBA - FX Swap Program Extended into 2015

FX and Capital Markets

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FX Swap Program Extended into 2015

December 22, 2014

The international scenario moved the Brazilian real and other emerging market currencies last week.

(full report attached)

Russia and the Federal Reserve drove the exchange rate in a week of high volatility

The international scenario moved the Brazilian real and other emerging market currencies last week. On Tuesday, following an interest rate increase in Russia, emerging market currencies including the real came under pressure in a wave of global risk aversion. However, on Wednesday, the statement by the U.S. Federal Reserve saying that it will be patient before starting to raise rates calmed down the markets. The exchange rate closed the week at 2.66 reais against the U.S. dollar, weakening 0.2% from the previous week’s closing price (Charts 1, 2, 3 and 4).

The central bank announced the extension of its FX swap program into 2015

During a speech on Tuesday, the head of the central bank announced the extension of the program of daily offers of FX swaps which was set to end on December 31, 2014, but the size of the daily auctions was not yet disclosed. Throughout the past week, the monetary authority continued to roll over FX swap contracts expiring in January and carried out FX credit line auctions every day, adding up to $7 billion (Charts 5 and 6).

Currency flow is negative in December

The contracted currency flow was once again negative in the second week of December, with $2.5 billion in financial outflows and $453 million in trade inflows. Net outflows in December total $2.4 billion (Charts 7 and 8).

No bond issuance in international markets in December

Borrowings abroad added up to $1.23 billion in the previous month (Chart 9 and table).

Foreign flows to the stock market remain negative in December 

Flows to the stock market are negative by $1.4 billion in December, with outflows from both the futures and spot markets (Chart 10).

Non-residents and institutional investors reduced their long positions in FX derivatives last week 

Institutional investors and non-residents reduced their positions in FX derivatives (dollar futures, cupom cambial and swaps) to $50.4 billion and $30.6 billion, respectively (Charts 11 and 12).

Outflows from funds dedicated to Brazil continued for another week 

For a fifth consecutive week there were outflows from funds dedicated to Brazil. Outflows also got heftier in the most recent period. During the week ended on December 17, equity funds and fixed income funds experienced net outflows of $979 million and $343 million, respectively (Charts 13 and 14).



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