Itaú BBA - Strong BRL appreciation during the week

FX and Capital Markets

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Strong BRL appreciation during the week

August 21, 2017

The minutes of the last Federal Reserve meeting and rising commodity prices boosted currencies last week, including the BRL

(full report attached)

Appreciation was driven by the benign international scenario

The minutes of the last Federal Reserve meeting — showing that policymakers are more cautions given the recent slowdown in inflation in the U.S — and rising commodity prices boosted emerging market currencies last week, including the BRL. The exchange rate closed the week at 3.15 reais per U.S. dollar, appreciating 1.48% from the previous week and outperforming its peers (Charts 1, 2, 3 and 4).

Central Bank did not intervene in the FX market

The monetary authority did not intervene in the FX market last week. Its stock of FX swaps now stands at $28 billion (Charts 5 and 6). 

Currency inflows on August 07-11

The currency flow was positive on August 07-11, driven by $377 million financial inflows (after 17 consecutive weeks of net outflows) and $1.8 billion trade inflows. Month-to-date, the flow is positive by $2.5 billion (Charts 7 and 8).

No external bond issuances last week 

There were no bond issuances abroad by Brazilian companies last week. Brazilian corporate bond offerings total $16.3 billion year-to-date vs. $17.7 billion a year ago (Chart 9 and table).   

Foreign flows to the stock market are negative in August

Foreign flows to the stock market are negative by $1 billion in August, as $1.7 billion outflows from the futures market outsized $0.7 billion inflows to the spot market (Chart 10).

Investors’ positions in FX derivatives were little changed

Last week, investors carried out few changes in their FX derivatives positions. Non-residents, banks and institutional investors hold positions of $16.1 billion, $10.8 billion and - US$ 0.6 billion, respectively (Charts 11, 12, 13 and 14).


 



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