Itaú BBA - Slight BRL appreciation, despite sovereign downgrade

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Slight BRL appreciation, despite sovereign downgrade

February 29, 2016

The BRL slightly appreciated, as international markets reacted positively to China’s signals toward exchange rate stabilization and new fiscal measures.

(full report attached)

Exchange rate closed the week at 4.00 reais per U.S. dollar, driven by external factors

Moody’s downgraded Brazil’s sovereign rating to Ba2 (two notches below investment grade) from Baa3, maintaining the negative outlook. Nevertheless, the BRL slightly appreciated during the week, as international markets reacted positively to China’s signals toward exchange rate stabilization and new fiscal measures. During the week, the BRL appreciated 0.55% and outperformed its peers (Charts 1, 2, 3 and 4).

Central bank will carry out FX credit line auctions today

The monetary authority finished last week the rollover of FX swap contracts due in March. Contracts were fully rolled over for a seventh consecutive month. The central bank also announced up to $2 billion in FX credit line auctions to be carried out today (Charts 5 and 6).

Currency flow was positive last week 

The currency flow was positive last week, as $1 billion trade inflows outsized $770 million financial outflows. The flow is negative by $1.2 billion in February (Charts 7 and 8).

No external bond issuance by Brazilian companies last week

There were no issuances this year. Issuances added up to $8 billion in 2015 (Chart 9 and table).

Foreign flows to the stock market are positive

Foreign flows to the stock market are positive in February, driven by $393 million inflows to the futures market and $460 million inflows to the spot market (Chart 10).

Investors reduced their positions in dollar futures

Foreign and institutional investors reduced their positions in dollar futures by $2.4 billion and $3.0 billion, respectively. Other positions in FX derivatives were virtually unchanged. Non-residents, banks and institutional investors hold positions of $26 billion, $48 billion and $27 billion, respectively (Charts 11, 12, 13 and 14).


 


 



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