Itaú BBA - Global scenario strengthens the USD and pressures emerging market currencies

FX and Capital Markets

< Back

Global scenario strengthens the USD and pressures emerging market currencies

October 30, 2017

The exchange rate closed the week at 3.24 reais per dollar, depreciating 1.3% and performing in line with its peers

(full report attached)
 

ECB decision and outlook for the U.S. economy boosted the greenback last week

The advance in Congress of the proposal to expand the U.S. budget deficit and expectations that the new bill will boost the local economy consolidated the view that the Federal Reserve will increase interest rates before year-end. Furthermore, the decision by the European Central Bank to keep monetary policy accommodative, albeit reduced, for longer and hold back higher interest rates also strengthened the dollar. This scenario put pressure on emerging market currencies, but a correction later in the week reverted some of the losses. The exchange rate closed the week at 3.24 reais per dollar, depreciating 1.3% and performing in line with its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6).

Currency inflows in October

The currency flow remains positive in October. Last week, $1.5 billion trade inflows outsized $676 million financial outflows. Month-to-date, the flow is positive by $2.1 billion (Charts 7 and 8).

No external bond issuances last week

There were no bond issuances abroad by Brazilian companies last week. Brazilian bond offerings total $26.5 billion year-to-date, topping the $20.4 billion issued during 2016 as a whole (Chart 9 and table).   

Foreign flows to the stock market are negative in October

Foreign flows to the stock market are negative by $880 million this month, driven by $779 million outflows from the futures market and $101 million outflows from the spot market (Chart 10).

Non-residents increased their position in dollar futures

Last week, non-residents increased their long position in dollar futures by $3.2 billion to $5.6 billion. Other FX derivatives positions were virtually unchanged. Non-residents, banks and institutional investors hold positions of $20.6 billion, $10.3 billion and $ -7.3 billion, respectively (Charts 11, 12, 13 and 14).



< Back