Itaú BBA - Real Weakens Again

FX and Capital Markets

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Real Weakens Again

May 25, 2015

Domestic and external factors put pressure on the currency later in the week, that reached 3.09

(full report attached)

Domestic and external factors put pressure on the currency later in the week.

The Brazilian real traded between 3.00 and 3.04 against the U.S. dollar during the week, but depreciated on Friday and reached 3.09, closing near its high for the period. Domestically, the budget freeze decree and weaker labor market figures in the CAGED report contributed for the weaker currency. Internationally, higher core inflation in the U.S. and the speech by the Federal Reserve President indicating that interest rates may rise this year also put pressure on the Brazilian currency (Charts 1, 2, 3 and 4).

Central bank continued to roll over contracts expiring in June.

The monetary authority continued to roll over $9.7 billion in FX swap contracts expiring in June, at a pace of 8,100 contracts per day. If this pace is sustained until the end of the month, the central bank will roll over 80% of the total batch and be $1.96 billion net long in swaps (Charts 5 and 6).

Currency flow was positive in the second week of May.

The currency flow was positive by $983 million in the second week of May, with $31 million in trade outflows and $1 billion in financial inflows. Month-to-date, the contracted currency flow is negative by $1.6 billion (Charts 7 and 8).

One new bond issuance abroad last week.

Last week, a financial institution issued $1.05 billion in international bonds due in 2018. Issuances add up to $1.6 billion month-to-date and $2 billion year-to-date (Chart 9 and table).

Foreign flow to the stock market is positive in May.

The foreign flow to the stock market is positive by $785 million in May, with inflows to the spot market, but outflows from the futures market (Chart 10).

Institutional investors increased their long FX derivatives positions.

During the past week, institutional investors increased their long positions in dollar futures and cupom cambial to $30.2 billion. Meanwhile, non-residents and banks reduced their long positions to $38.5 billion and $37.5 billion, respectively (Charts 11, 12, 13 and 14).


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