Itaú BBA - Weaker U.S. Dollar, stronger BRL

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Weaker U.S. Dollar, stronger BRL

February 10, 2016

More dovish signals by the Fed led the dollar to weaken against several currencies.

(full report attached)

External scenario favored the Brazilian currency, which closed the week at 3.91

More dovish signals by the Federal Reserve regarding the US monetary tightening cycle led the dollar to weaken against several currencies last week. The Brazilian currency strengthened to as much as 3.85 reais per dollar and closed the week at 3.91, appreciating 2.40% and outperforming its peers (Charts 1, 2, 3 and 4).

Central bank started to roll over FX swap contracts expiring in March

As previously announced, the monetary authority last week continued to roll over contracts due in March. If the pace of 11,900 contracts per day is sustained, contracts will be fully rolled over for a seventh consecutive month (Charts 5 and 6).

Currency flow was positive in January

The currency flow was negative by $334 million last week, but positive by $1.5 billion in January, driven by $3.4 billion trade inflows and $1.9 billion financial outflows (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 slightly negative

Foreign flows to the stock market were negative in January, as $204 million outflows from the spot market outsized $100 million inflows to the futures market (Chart 10).

Changes in FX derivatives positions last week

Non-residents increased their long positions in dollar futures by $8 billion, while reducing their long positions in cupom cambial by $8.7 billion. Institutional investors cut their positions in dollar futures by $4.8 billion and added long positions in cupom cambial instruments by $1.5 billion. Non-residents, banks and institutional investors hold positions of  $27 billion, $43 billion and $31 billion, respectively (Charts 11, 12, 13 and 14).


 



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