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Low U.S. inflation boosts emerging market currencies

October 16, 2017

Lower-than-estimated inflation in the U.S. weakens the dollar.

(full report attached)

Lower-than-expected inflation in the U.S. and expected inflows favored the BRL

Lower-than-estimated inflation put into question plans by the U.S. Federal Reserve to hike the benchmark interest rate before year-end, weakening the dollar and favoring emerging market currencies. Domestically, the outlook for inflows also benefitted the local currency. The exchange rate closed the week at 3.15 reais per dollar, appreciating 0.3% and performing in line with its peers (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 inflows in October

The currency flow has sustained the previous month’s positive trend. Last week, $900 million financial inflows and $80 million trade inflows were registered (Charts 7 and 8).

New bond offering abroad 

A local steel company placed $650 million in bonds due in 2027.  Brazilian bond offerings abroad total $25.1 billion in the year through October, already topping the $20.4 billion issued during 2016 as a whole (Chart 9 and table).  

Foreign flows to the stock market are negative in October

Foreign flows to the stock market are negative by $807 million during the month, as $849 million outflows from the futures market outsized $41 million inflows to the spot market (Chart 10).

Non-residents increased their position in dollar futures

Last week, non-residents increased their position in dollar futures by $1.2 billion to $2.4 billion. Non-residents, banks and institutional investors hold positions of $15.8 billion, $13.9 billion and -$ -6.8 billion, respectively (Charts 11, 12, 13 and 14).



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