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International environment pressures EM FX markets

August 13, 2018

Crisis in Turkey triggers global risk aversion

(full report attached)
 

Crisis in Turkey triggers global risk aversion

The crisis in the Turkish economy escalated after President Donald Trump announced that the U.S. will double tariffs on steel and aluminum imports from the Eurasian country. The dollar reached its strongest level ever against the Turkish lira and the move triggered aversion to emerging market assets. In Brazil, the exchange rate closed the week at 3.86 reais per dollar, depreciating 4.1% and underperforming 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 carried out the rollover of contracts expiring in September. Its stock of FX swaps now stands at $67 billion (Charts 5 and 6).

Currency outflows in early August

July ended with $5.9 billion currency inflows. However, the balance for the earliest days of August is negative by $524 million, dragged by financial and trade 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 $308 million this month, as $393 million inflows to the futures market offset $85 million outflows from the spot market (Chart 10).

Non-residents increased their position in dollar futures

Non-resident Investors increased their position in dollar futures by $920 million. Other FX derivatives positions were virtually unchanged. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $37.6 billion, $10.9 billion and $17.7 billion, respectively (Charts 11, 12, 13 and 14).



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