Argentina’s peso extended its slide for a third session as seasonal demand for dollars picks up ahead of the South American winter holidays, while markets anticipate a dwindling supply of hard currency in the coming months.
The peso that trades on official markets weakened as much as 1.7 percent to as low as 1,243 pesos per dollar during Wednesday trading, according to pricing data compiled by Bloomberg. Since President Javier Milei lifted most currency controls in mid-April, the peso has weakened more than 12 percent – the most in emerging markets. The parallel exchange rate was down 0.6 percent on Wednesday, too.
Employees in Argentina are receiving mid-year 'aguinaldo' bonus payments, which local traders say spark a surge in dollar demand as they rush to exchange pesos for greenbacks before booking trips abroad. Outgoing tourism has increased significantly during Milei’s Presidency, while foreigners are cutting back as the country becomes more expensive.
“The beginning of July, after bonus payments and before winter vacations, always presents some seasonal volatility,” said Juan Manuel Pazos, chief economist at Buenos Aires-based brokerage one618. “We’re not concerned in the short term.”
To be sure, dollars are still flowing into South America’s second largest economy as crop exporters liquidate greenbacks this week to take advantage of a tax break on agriculture exports. However, the supply of dollars in Argentina’s local currency market tends to dwindle in the second half of the year as crop exports gradually dissipate.
Ahead of October midterm elections, Milei is facing a slew of challenges that also stand to put pressure on Argentine assets. A US$16-billion lawsuit in the US stemming from the 2012 nationalisation of energy giant YPF SA intensified this week, while Argentina is also still trying to close out the first review of its US$20-billion programme with the International Monetary Fund, with analysts expecting the government to miss a key target.
“Several factors may have contributed to the move, including heightened political uncertainty ahead of the elections,” BancTrust & Co. strategists Juan Solá and Mariano Ortiz Villafañe wrote in a note on Wednesday ahead of the market open. “The end of the peak harvest season in July is expected to lead to a drop in agricultural FX inflows.”
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by Kevin Simauchi, Bloomberg
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