Itaú BBA - Real hits weakest level this year

FX and Capital Markets

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Real hits weakest level this year

July 27, 2015

The downward revision in the government’s fiscal target for this year and coming years impacted the exchange rate last week.

(full report attached)

The Brazilian real depreciated during the past week 

The downward revision in the government’s fiscal target for this year and coming years impacted the exchange rate last week. The currency closed at 3.36 reais per U.S. dollar, weakening 5% and underperforming its peers (Charts 1, 2, 3 and 4).

Central bank continued to roll over contracts expiring in August

The monetary authority continued to roll over the $10.7 billion in swap contracts expiring in August, at a pace of 6,000 contracts per day. If this pace is maintained until the end of the month, the central bank will roll over 60% of the total batch and will decrease its FX swap position by $4.3 billion (Charts 5 and 6).

Another week of negative currency flow 

The currency flow was negative again, dragged by financial outflows. The currency flow in July is negative by $2.4 billion, as financial outflows ($4.1 billion) outsized trade inflows ($1.8 billion) (Charts 7 and 8).

No external bond issuance last week

No bonds were issued by Brazilian companies overseas. June issuances added up to $5 billion (Chart 9 and table).

Foreign flows to the stock market are slightly negative in July

Foreign flows to the stock market are negative by $30 million in July, as inflows to the spot market are thinner than outflows from the futures market (Chart 10).

Foreign and institutional investors increased their long FX derivatives positions

Non-residents and institutional investors increased their long positions in FX derivatives, particularly dollar futures andcupom cambial, to $39.0 billion and $23.4 billion, respectively. Meanwhile, banks reduced their positions to $40.7 billion (Charts 11, 12, 13 and 14).



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