Itaú BBA - International volatility continues to pressure the BRL

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International volatility continues to pressure the BRL

September 10, 2018

The volatile international environment continues to pressure the Brazilian currency.

(full report attached)
 

Exchange rate ended the week at 4.06 reais per U.S. dollar

The volatile international environment continues to pressure the Brazilian currency. Concerns about a crisis in Argentina pushed the BRL to its recent lows against the dollar (4.21). Later in the week, the exchange rate rebounded and closed at 4.06, virtually unchanged on a weekly basis and outperforming its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market last week

Last week, the monetary authority did not offer additional FX swap contracts or carry out line auctions, and rather just rolled over of contracts expiring in October. Its stock of FX swaps now stands at $69 billion (Charts 5 and 6).

Currency outflows in August

The currency flow was negative by $4.2 billion last month, pressured by $9.8 billion financial outflows that outsized $5.6 billion 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 $15.6 billion (Chart 9 and table).

Foreign flows to the stock market were positive in August

Foreign flows to the stock market were positive by $2.1 billion for the month, driven by $843 million inflows to the spot market and $1.2 billion inflows to the futures market (Chart 10).

Non-residents switch to a short position in dollar futures

Non-residents moved from a long position of $4.2 billion in dollar futures to being short by $3.3 billion. They also reduced their position in cupom cambial by $3.1 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $36.9 billion, $12.4 billion and $18.7 billion, respectively (Charts 11, 12, 13 and 14).



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