Peso slumps to record as new controls squeeze market
The Argentine currency, peso, dropped to an all-time low in the unofficial market as the country prepares for uncertainty leading up to crucial preliminary elections taking place on Sunday.
The unofficial exchange rate in Argentina, also known as the blue-chip swap, experienced a decrease of up to 1.7 percent on Monday, settling at approximately 591 pesos per dollar. Additionally, the official exchange rate in Argentina declined by as much as 1.4 percent, marking its highest intraday drop since September 2020. Consequently, the disparity between the two rates has now exceeded 109 percent.
Traders are under immense strain following the imposition of fresh limitations by Argentina's securities regulator. These restrictions prohibit investors from engaging in the trading of sovereign bonds denominated in dollars or American Depositary Receipts for a duration of 15 days after participating in the local market. This action, commonly employed to bypass currency controls, has injected additional pressure on traders.
The limitations, disclosed on August 2, are relevant to domestic brokers and pertain to specific assets that can be converted into cash within 48 hours. On August 7, the governing authority directed brokers to abstain from engaging in trade if they believe they have violated the rules, without waiting for an official caution beforehand.
Argentinians will cast their votes on August 13th to choose the contenders for the presidency. These candidates aim to tackle the issue of skyrocketing inflation and handle an economy that is currently on the brink of a recession. The actual election will take place in October.
As the primaries have been approaching, market players have been preparing themselves for the potential outcomes. However, the anticipation of devaluation has grown stronger after voter surveys, seldom disclosed in Argentina, revealed a smaller difference between the opposition and the ruling party. On average, five polls conducted by local broker PPI indicated that the gap in voting intentions between these two parties has decreased from 5.6 points last month to 2.4 points.
"We do not observe significant factors that could alleviate the pressure on the dollarization trend within the next five days leading up to the primaries," stated PPI analysts, headed by Pedro Siaba Serrate, in a report released on Monday. "The current level of the blue-chip swap may appear excessive in the event of an opposition victory, but appears relatively inexpensive if the incumbent coalition emerges as a strong contender in the primary elections."
Authored by Ignacio Olivera Doll and Scott Squires from Bloomberg.
