Itaú BBA - International environment drove FX markets last week

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International environment drove FX markets last week

July 10, 2018

rising concerns regarding a trade war between the U.S. and China pressured emerging market currencies

(full report attached)
 

Local exchange rate closed the week at 3.86 reais per U.S. dollar

Throughout the week, rising concerns regarding a trade war between the U.S. and China pressured emerging market currencies. On Friday, however, a higher-than-expected increase in the unemployment rate in the U.S. provided some relief to several currencies. In Brazil, the exchange rate closed the week at 3.86 reais per dollar, appreciating 0.4% (Charts 1, 2, 3 and 4).

Central Bank still refrains from FX interventions

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

Currency inflows in June

The currency flow remains positive this month, by $3.7 billion. Last week, however, the flow was negative as $1.6 billion financial outflows topped $695 million trade inflows (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 $15.1 billion (Chart 9 and table).  

Foreign flows to the stock market are slightly positive in the first week of July

Foreign flows to the stock market were positive by $ 50 million in the first week of July, as $119 million inflows to the futures market outsized $69 million outflows from the spot market (Chart 10).

Investors significantly changed their FX derivatives positions 

Non-residents reduced their position in dollar futures by $10 billion, while increasing their position in cupom cambial by $12.5 billion. Institutional investors lowered their short position in dollar futures by $6.7 billion, while boosting their position in FX swaps by $4.3 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $35.7 billion, $13.8 billion and $16.9 billion, respectively (Charts 11, 12, 13 and 14).


 



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