Itaú BBA - International backdrop still pressures EM FX markets

FX and Capital Markets

< Back

International backdrop still pressures EM FX markets

August 20, 2018

Most currencies weakened last week as the crisis in Turkey fueled concerns about emerging market economies

(full report attached)
 

Crisis in Turkey continues to cause instability

Notwithstanding some relief on Friday, most currencies weakened last week as the crisis in Turkey fueled concerns about emerging market economies. In Brazil, the exchange rate closed the week at 3.91 reais per U.S. dollar, depreciating 1.2% and performing in line with its peers (Charts 1, 2, 3 and 4).

Central Bank is still refraining from FX interventions

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just finished the rollover of contracts expiring in September. Its stock of FX swaps now stands at $67 billion (Charts 5 and 6).

Currency inflows in August

The month-to-date currency flow is positive by $352 million, thanks to last week’s results, when $2.0 billion trade inflows offset $1.1 billion financial outflows (Charts 7 and 8).

No external bond issuances last week

There were no issuances by Brazilian companies abroad last week. Year-to-date, Brazilian bond offerings overseas total $15.6 billion (Chart 9 and table).  

Foreign flows to the stock market are positive in August

Foreign flows to the stock market are positive by $719 million this month, driven by $140 million inflows to the spot market and $579 million inflows to the futures market (Chart 10).

Non-residents reduced their position in dollar futures

Non-residents reduced their position in dollar futures by $1.5 billion. Other derivative positions were virtually unchanged. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $36.9 billion, $12.1 billion and $17.7 billion, respectively (Charts 11, 12, 13 and 14).



< Back