Itaú BBA - Real weakens on commodity prices and Greece

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Real weakens on commodity prices and Greece

July 13, 2015

Uncertainties surrounding the Grexit and the drop in commodity prices put pressure on the exchange rate, which weakened beyond 3.20 reais per U.S. dollar.

(full report attached)

The Brazilian real depreciated during the past week

Throughout the past week, uncertainties surrounding the so-called Grexit and the drop in commodity prices put pressure on the exchange rate, which weakened beyond 3.20 reais per U.S. dollar. On Friday, however, the possibility of an agreement with Greece led the currency to strengthen. The exchange rate closed the week at 3.16, down by 0.83%, in line with its peers (Charts 1, 2, 3 and 4).

Central bank continues to roll over contracts expiring in August

The monetary authority continued to roll over the $10.7 billion in FX 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 be $4.3 billion net long in swaps (Charts 5 and 6).

Currency flow was negative in June

The currency flow was negative by $4.7 billion in June, with $7.6 billion in financial outflows and $2.9 billion in trade inflows. It was the largest negative result year-to-date. So far, in the first three days of July, the flow is negative by $1.5 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 positive in July

Foreign flows to the stock market are positive by $107 million in July, with inflows to the spot market and outflows from the futures market (Chart 10).

Institutional and foreign investors increased their long positions in FX derivatives.

Institutional and non-resident investors increased their long positions in FX derivatives, particularly dollar futures, to $22.9 billion and $38 billion, respectively (Charts 11, 12, 13 and 14).


 



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