Itaú BBA - Real tested new lows last week

FX and Capital Markets

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Real tested new lows last week

August 31, 2015

The real weakened beyond 3.65 at some point with the global risk aversion, but markets calmed down later in the week.

(full report attached)

The exchange rate weakened beyond 3.65, but closed the week near 3.60 reais per U.S. dollar.

Early in the week, worries about economic growth in China took over global markets, and risk aversion led the Brazilian real and other currencies to depreciate against the dollar. The real weakened beyond 3.65 at some point, but markets calmed down later in the week. The Brazilian currency closed the week at 3.58 reais per dollar, depreciating 2.3% and underperforming its Latin American peers (Charts 1, 2, 3 and 4).

Central bank announced full rollover of FX swap contracts expiring in October and also a line auction.

The monetary authority concluded the full rollover of the $10.0 billion in swap contracts expiring in September, and announced the rollover of contracts due in October at a pace of 9,450 contracts per day. If this pace is sustained until the end of the month, that would represent the rollover of 100% of the total batch for a second consecutive month. The central bank also announced a line auction of up to $2.4 billion today (Charts 5 and 6).

Currency flow remained positive in the third week of August.

The currency flow remained slightly positive in the third week of August, with $370 million in trade inflows and $518 million in financial inflows. The flow during the month is positive by $1.8 billion (Charts 7 and 8).

No external bond issuance last week.

No bonds were issued by Brazilian companies overseas. Year-to-date, issuances add up to $8 billion (Chart 9 and table).

Foreign flows to the stock market are negative in August.

Foreign flows to the stock market are negative by $668 million in August, as $318 million in inflows to the futures market are offset by $986 million in outflows from the spot market (Chart 10).

Foreign and institutional investors and banks kept their long positions in FX derivatives virtually unchanged in the past week.

Non-residents, institutional investors and banks maintained their long positions in FX derivatives at $31.6 billion, $21.8 billion and $45.2 billion, respectively (Charts 11, 12, 13 and 14).


 



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