Itaú BBA - High Volatility and Stronger Dollar

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High Volatility and Stronger Dollar

February 23, 2015

The exchange rate closed at 2.87 reais per dollar

(full report attached)

Brazilian real continued to weaken last week 

Over the past week, uncertainties surrounding the extension of the Eurozone’s loan program to Greece set the tone in the foreign exchange markets. The U.S. dollar strengthened against many other currencies besides the real. The exchange rate closed at 2.87 reais per dollar, depreciating 1.2% from the previous week’s closing price (Charts 1, 2, 3 and 4).

Central bank continues to act in the currency market 

The monetary authority sold $200 million in FX swap contracts last week and rolled over contracts expiring in March. If the rollover pace of 13,000 contracts per day is maintained until the end of the month, the central bank will be net short $1.7 billion in FX swaps (Charts 5 and 6).

Negative currency flow in the past week

During the second week of February, the currency flow was negative by $376 million, in contrast with the previous weeks. Still, the flow is positive by $447 million month-to-date (Charts 7 and 8).

No new bond issuance overseas in the past week 

No bond issuance was announced last week. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market are positive in February

Flows to the stock market are positive by $1.5 billion, with inflows to the spot market and the futures market as well (Chart 10).

Non-residents increased their long positions in FX derivatives last week

In the past week, non-residents increased their long positions in FX derivatives (dollar futures in particular) to $40.6 billion. Banks reduced their positions, while institutional investors kept theirs virtually unchanged (Charts 11, 12 and 13).

After three months, equity funds dedicated to Brazil post net inflows

During the week ended on February 18, equity funds posted $52 million in net inflows. However, fixed income funds dedicated to Brazil experienced $30 million in outflows (Charts 14 and 15).

 



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