Itaú BBA - International and domestic factors drove the Brazilian Real last week

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International and domestic factors drove the Brazilian Real last week

July 20, 2015

The real weakened by the end of last week due to domestic uncertainties.

(full report attached)

The real weakened by the end of last week 

The real fluctuated at a stronger level during the past week due to the agreement in Greece and better economic data from China. However, later in the week, domestic uncertainties pressured the currency. The exchange rate closed the week at 3.19 reais per U.S. dollar, depreciating 1%, in line with its peers (Charts 1, 2, 3 and 4).

Central bank continues to roll over contracts expiring in August

The monetary authority continued to roll over the $10.7 billion in swap contracts expiring in August, at a pace of 6,000 contracts per day. If this pace is maintained until the end of the month, the central bank will roll over 60% of the total batch and will decrease its short position in FX swaps by $4.3 billion (Charts 5 and 6).

Currency flow remains negative in July

The currency flow is negative by $1.3 billion in July, with $2.2 billion in financial outflows outsizing $898 million in trade inflows (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. June issuances added up to $5 billion (Chart 9 and table).

Foreign flows to the stock market remain slightly positive in July

Foreign flows to the stock market are positive by $125 million in July, with inflows to the spot market and outflows from the futures market (Chart 10).

Foreign investors reduced their long positions in FX derivatives

Non-resident investors reduced their long positions in FX derivatives, particularly dollar futures and cupom cambial, to $36.5 billion. Meanwhile, banks and institutional investors increased their positions to $43.1 billion and $23.2 billion, respectively (Charts 11, 12, 13 and 14).

 



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