Itaú BBA - Stronger Real and Rising Volatility

FX and Capital Markets

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Stronger Real and Rising Volatility

April 6, 2015

The exchange rate was still highly volatile last week, but unlike previous weeks, the Brazilian real closed stronger than one week earlier.

(full report attached)

Despite some appreciation in the past week, volatility remained intense in the foreign exchange market.

The exchange rate was still highly volatile last week, but unlike previous weeks, the Brazilian real closed stronger than one week earlier. The exchange rate ended the week at 3.12 reais per U.S. dollar, strengthening 4.1% and outperforming its peers (Charts 1, 2, 3 and 4).

Central bank started to roll over contracts expiring in May.

As previously announced, the rollover of $10.1 billion expiring in May started last week at a pace of 10,600 contracts per day. The full rollover ensures that the FX swap stock remains constant at $113 billion (Charts 5 and 6).

Currency flow was positive in the last week of March.

The currency flow was positive in the final week of March, with $40 million in trade outflows and $468 million in financial inflows. The currency flow was positive by $1.2 billion by March 27 (Charts 7 and 8).

No new bond issuance overseas in the past week.

Another week passed without any bond issuances in the external market. So far, issuances add up to $400 million year-to-date (Chart 9 and table).

Foreign flows to the stock market were positive in March.

Foreign flows to the stock market were positive by $1.1 billion by the end of March, with outflows from the futures market, but inflows to the spot market (Chart 10).

Banks and institutional investors reduced their long FX derivatives positions last week.

In the past week, institutional investors and banks reduced their long FX derivatives positions to $26.9 billion and $42.4 billion, respectively. Meanwhile, non-residents increased their positions to $39.3 billion (Charts 11, 12 and 13).

Another week of outflows from equity and fixed income funds dedicated to Brazil.

During the week ended on April 1st, there were once again net outflows from equity funds ($189 million) and fixed income funds ($7.8 million) (Charts 14 and 15).



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