After months of currency shocks that dragged the peso down to historical lows, the Argentine economy is showing signs that the lion’s share of the market correction has already taken place as the flow of dollars begins to balance out. Since the Oct. 1 start of the new monetary plan, which seeks to reduce the amount of pesos in circulation, the currency has strengthened almost 13 percent and now operates near the lower band set by the central bank.
Hitting the Floor
Argentine peso strengthens, approaches the lower limit set by Central Bank
1 – Less hunger for the dollar
Demand for dollar holdings fell by half in September to $1.1 billion compared to August, according to the central bank’s latest foreign exchange report.
“Savers are tending to sell more dollars” in bank branches, says Banco Comafi wholesale banking director Fabio Saraniti. “Now we are ending with a positive balance in the purchase and sale of cash with customers.”
2 – Trade surplus with Brazil
September was the first month since 2014 where the trade gap with Brazil, Argentina’s main trading partner, was positive.
A weaker peso balances out Argentina-Brazil trade
Thanks to a weaker exchange rate, exports to Brazil grew 13 percent annually, while imports fell 35 percent.
3 – Fewer Argentines around the world
A stronger dollar discourages Argentines from traveling outside the country, thus reducing the demand for foreign currency.
The national statistics agency reported this week that 11.9 percent fewer Argentines left the country in August, compared to the previous month, while 7.4 percent more foreigners entered.
Tourism was the main factor behind capital flight in Argentina since 2011, having reached a record $10.6 billion in 2017 alone.
4 – Rate relief
Argentina’s Central Bank this week lowered its monetary policy rate for the first time since January.
The bank managed to renew almost all of its maturities at a yield that was slightly lower than that of the start of the week.
5 – Market in tune with central bank
Market and central bank expectations regarding the peso began to converge in recent days. Investors are betting that the currency will follow the path set by the central bank, hovering in the middle of the trading bands until the end of the year.
FX futures point to a peso fluctuating within the bands set by the central bank
The fact that the curve “remains at the center of the trading bands is a good sign regarding the credibility” of the plan, Eco Go Consultores director Federico Furiase said.