Itaú BBA - Weakening Trend in the Real Continues

FX and Capital Markets

< Back

Weakening Trend in the Real Continues

March 9, 2015

Exchange rate depreciated beyond 3.00 reais per U.S. dollar and the central bank did not change its form of intervention.

(full report attached)

Exchange rate depreciated beyond 3.00 reais per U.S. dollar...

The Brazilian real continued to depreciate during the past week. Domestically, uncertainties surrounding the implementation of the fiscal adjustment proposed by the government increased. Externally, stronger data on the U.S. labor market reinforced the upward move. The real depreciated 7.3% last week, underperforming its peer currencies (Charts 1, 2, 3 and 4).

...and the central bank did not change its form of intervention.

The monetary authority continued to roll over contracts expiring in April at a pace of 7,400 contracts per day. If this same pace is sustained until the end of the month, the central bank will roll over 78% of the total batch and will be net neutral in terms of FX swap contracts (Charts 5 and 6).

Currency flow was negative in February.

With a negative result in the last week of the month, the currency flow ended February with $1.1 billion in outflows. The financial flow was negative by $1.7 billion, while the trade flow was positive by $568 million (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 are slightly positive in March.

After ending February with $2.5 billion in inflows, flows to the stock market remained positive in March, with $72 million in inflows (Chart 10).

Non-residents and banks increased their long FX derivatives positions last week.

In the past week, non-residents and banks increased their long positions in FX derivatives to $41.3 billion and $39.4 billion, respectively. Meanwhile, institutional investors reduced their positions to $27.6 billion (Charts 11, 12 and 13).

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

During the week ended on March 4, there were net inflows to equity funds ($43.3 million) as well as fixed income funds ($178 million) (Charts 14 and 15).



< Back