Itaú BBA - Real continues to test all-time lows

FX and Capital Markets

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Real continues to test all-time lows

March 16, 2015

During the past week, the Brazilian real continued to depreciate in the face of local political and economic uncertainties.

(full report attached)

Exchange rate reached 3.28 reais per U.S. dollar and closed the week at 3.25.

During the past week, the Brazilian real continued to depreciate in the face of local political and economic uncertainties. The exchange rate had weakened 5.7% by the end of the week, once again underperforming its peer currencies (Charts 1, 2, 3 and 4).

Once again, the central bank did not change its intervention style.

The monetary authority continued  to roll over contracts expiring in April at a pace of 7,400 contracts per day, confirming the rollover of 78% of the total batch if this pace is sustained until the end of the month (Charts 5 and 6).

Currency flow was positive in early March.

The currency flow was positive in the first week of March, with $2.0 billion in financial inflows and $1 billion in trade inflows (Charts 7 and 8).

No new bond issuance overseas in the past week.

Another week passed without any bond issuances in the external market. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market became negative in March.

Foreign flows to the stock market are negative in March by $621 million, with outflows from both the spot and the futures markets (Chart 10).

Non-residents reduced their long FX derivatives positions last week.

In the past week, non-residents reduced their long positions in FX derivatives to $40.3 billion. Meanwhile, banks and institutional investors increased their positions to $40.4 billion and $27.8 billion, respectively (Charts 11, 12 and 13).

After two weeks of positive results, equity and fixed income funds dedicated to Brazil experienced more outflows.

During the week ended on March 11, there were net outflows from equity funds ($143 million) as well as fixed income funds ($60 million) (Charts 14 and 15).



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