Itaú BBA - Global relief benefits EM FX

FX and Capital Markets

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Global relief benefits EM FX

September 24, 2018

The BRL appreciated 3.0% to 4.05 reais per dollar by the end of the week

(full report attached)

Expectation that U.S. and China will avert trade dispute escalation favors emerging market currencies

The lower likelihood of a global trade war that would hurt economic growth in emerging markets favored their assets last week. The Brazilian currency appreciated 3.0% to 4.05 reais per dollar by the end of the week, performing 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 offer additional FX swap contracts or carry out line auctions, and rather just rolled over of contracts expiring in October. Its stock of FX swaps now stands at $69 billion (Charts 5 and 6).

Currency outflows in September

The currency flow was negative last week, as $892 million financial outflows outsized $274 million trade inflows. Month-to-date, the flow is negative by $1.5 billion (Charts 7 and 8).

External corporate bonds are offered again

The first foreign bond offering since July took place last week. A paper and pulp company issued $1.0 billion in bonds expiring in 2029. Year-to-date, Brazilian bond offerings overseas total $16.6 billion (Chart 9 and table). 

Foreign flows to the stock market are positive in September

Foreign flows to the stock market are positive by $377 million this month, driven by $89 million inflows to the spot market and $288 million inflows to the futures market (Chart 10).

Non-residents reduce position in dollar futures

Non-resident investors reduced their position in dollar futures by $2.6 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $34.9 billion, $14.1 billion and $18.8 billion, respectively (Charts 11, 12, 13 and 14).

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