Itaú BBA - U.S. Dollar strengthens after rate hike in the U.S.

FX and Capital Markets

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U.S. Dollar strengthens after rate hike in the U.S.

December 19, 2016

The U.S. Fed decision to increase the benchmark interest strengthened the dollar against most currencies, including the BRL.

(full report attached)

Still, the Brazilian currency depreciated only 0.23%

The U.S. Federal Reserve’s decision to increase the benchmark interest rate by 25 bps, as well as the signaling that three more hikes are on the way in 2017, strengthened the dollar against most currencies, including the Brazilian real. However, expectations surrounding fiscal reforms in Brazil supported the BRL, which closed the week down by 0.23% and outperformed its peers (Charts 1, 2, 3 and 4).

Central bank ends the rollover of FX swap contracts expiring in January

Last week, the monetary authority ended the rollover of FX swap contracts expiring in January. The central bank’s short position in FX swaps stands at $27 billion (Charts 5 and 6).

Currency outflows last week

Last week, there were $2.4 billion financial outflows and $125 million trade outflows. The currency flow is negative by $1 billion in December (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 $19 billion year-to-date vs. $8 billion in 2015 (Chart 9 and table).   

Foreign flows to the stock market are negative

Foreign flows to the stock market are negative by $307 million in December, driven by $251 million outflows from the spot market and $56 million outflows from the futures market (Chart 10).

Non-residents changed their position in dollar futures

Non-residents increased their long position in dollar futures by $1.6 billion. Non-residents, banks and institutional investors hold positions of $11.8 billion, $21.2 billion and $ -4 billion, respectively (Charts 11, 12, 13 and 14).


 



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