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International scenario pressures FX market

March 19, 2018

Less benign international scenario put pressure on emerging market currencies

(full report attached)

Concern with a possible trade war put pressure on emerging market currencies

Last week, replacements at the highest level of the Trump administration reinforced expectations that the U.S. will adopt a protectionist stance, causing capital to flow back to developed economies and pressuring emerging market currencies. The exchange rate closed the week at 3.28 reais per dollar, depreciating 0.8% and performing in line with its peers (Charts 1, 2, 3 and 4).

Central Bank continued to roll over FX contracts expiring in April

The monetary authority continued to roll over FX swap contracts due in April. If this pace is sustained until the end of the month, such contracts will be fully rolled over, adding up to $9.0 billion. The Central Bank’s stock of FX swaps now stands at $24 billion (Charts 5 and 6).

Currency outflows in March

The currency flow is negative in March, as $5.8 billion financial outflows outsized $2.0 billion trade inflows. Month-to-date, the flow is negative by $3.7 million (Charts 7 and 8).

New bond offerings overseas

A financial institution issued $750 million in perpetual bonds, while an oil & gas company issued $4.4 billion in bonds due in 2023. Year-to-date, Brazilian bond offerings overseas total $13.0 billion (Chart 9 and table).  

Foreign flows to the stock market are negative in March

Foreign flows to the stock market are negative by $1.2 billion in March, driven by $281 million outflows from the futures market and $919 million outflows from the spot market (Chart 10).

Investors changed their positions in dollar futures

Non-residents reduced their position in dollar futures by $1.8 billion, while institutional investors increased their short position in the same derivative by $1.3 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $16.7 billion, $14.6 billion and $ -7.0 billion, respectively (Charts 11, 12, 13 and 14).



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