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More benign international scenario boosts EM currencies

July 30, 2018

Closing the week at 3.71 per dollar, the Brazilian real performed in line with its peers

(full report attached)
 

BRL reached its strongest levels since May
 

The global scenario favored flows to emerging market economies last week. The meeting between U.S. President Donald Trump and the President of the European Commission helped to reduce fears of a trade war, while lower-than-expected U.S. GDP growth reduced chances of aggressive interest rate hikes in the country. The local currency appreciated during the week and reached its strongest levels since May. Closing the week at 3.71 per dollar, the Brazilian real performed in line with 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 continued to roll over contracts expiring in August. Its stock of FX swaps now stands at $67 billion (Charts 5 and 6).

Currency inflows in July

The currency flow was positive last week, as $938 million financial inflows offset $497 million trade outflows. Month-to-date, the flow is positive by $4.2 billion (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 July

Foreign flows to the stock market are positive by $1.2 billion this month, as $1.3 billion inflows to the spot market outsized $144 million outflows from the futures market (Chart 10).

Investors reduced positions in dollar futures

Non-residents reduced their position in dollar futures by $2.1 billion. Non-residents, banks and institutional investors hold FX derivative positions (dollar futures, cupom cambial and swaps) of $37.6 billion, $13.4 billion and $14.7 billion, respectively (Charts 11, 12, 13 and 14).



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