Itaú BBA - Political uncertainty weighs on the BRL

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Political uncertainty weighs on the BRL

June 12, 2017

The exchange rate depreciated 1.55% from one week earlier, underperforming its peers

(full report attached)

Brazilian currency underperforms its peers 

The Brazilian currency was again pressured by political uncertainties last week, amid concerns that fiscal reforms may be jeopardized by political news headlines. The exchange rate closed at 3.30 reais per U.S. dollar, depreciating 1.55% from one week earlier and underperforming its peers (Charts 1, 2, 3 and 4).

Central Bank starts to roll over FX swap contracts expiring in July

Last week, the monetary authority started to roll over FX swap contracts expiring in July, at a pace of 8,200 contracts per day, and announced that another auction will take place today. If this pace is sustained, contracts will be fully rolled over. The Central Bank’s stock of FX swaps now stands at $28 billion (Charts 5 and 6).

Currency inflows in May 

The month of May ended with a positive currency flow, as $6 billion trade inflows outsized $5.2 billion financial outflows. In the first two days of June, the flow was negative by $297 million (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian corporate bond offerings totaled $5 billion in May and $15.7 billion year-to-date vs. $11.5 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are roughly flat in June

Foreign flows to the stock marketare virtually flat in June, driven by $25 million inflows to the spot market and $39 million outflows from the futures market (Chart 10).

No changes in FX derivative positions 

Last week, investors maintained their positions in FX derivatives. Non-residents, banks and institutional investors hold positions of $13.6 billion, $10.7 billion and $2.3 billion, respectively (Charts 11, 12, 13 and 14).


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