Itaú BBA - International scenario continues to drive currencies

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International scenario continues to drive currencies

January 22, 2018

A benign international scenario continues to support emerging market currencies

(full report attached)

Brazilian currency strengthened last week amid concerns with U.S. budget stalemate

A benign international scenario has supported emerging market currencies at the beginning of the year. The reopening of Brazil’s sovereign Global 2047 bonds last week reinforced this trend. On the other hand, the possible shutdown of the U.S. government brought caution to global markets later in the week. The exchange rate closed the week at 3.20 reais per dollar, appreciating 0.15% (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $24 billion (Charts 5 and 6).  

Currency flow is positive by $1.9 billion in January

The financial currency flow was positive for a second consecutive week, as $2.6 billion financial inflows outsized $713 million trade outflows. During the week, the flow was positive by $1.9 billion (Charts 7 and 8).

New bond offerings abroad

Last week, the National Treasury raised $1.5 billion by reopening its Global 2047 bonds. Additionally, a transportation and logistics company issued $600 million in bonds due in 2025 (Chart 9 and table).

Foreign flows to the stock market are positive in January

Foreign flows to the stock market are positive by $1.4 billion in January, as $1.5 billion inflows to the spot market topped $73 million outflows from the futures market (Chart 10).

Investors changed their positions in dollar futures 

Non-residents reversed a $200 million short position in dollar futures into a $2.0 billion long position. Meanwhile, institutional investors increased their short position in the same derivative by $1.9 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $14.5 billion, $16.7 billion and $ -8.1 billion, respectively (Charts 11, 12, 13 and 14).

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