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ECONOMY | 07-08-2023 15:27

Argentine peso slumps to record as new controls squeeze market

Argentina’s peso fell to a record low in the parallel market as the nation braces for volatility ahead of key primary elections on Sunday.

 

Argentina’s peso fell to a record low in the parallel market as the nation braces for volatility ahead of key primary elections on Sunday.

The parallel exchange rate, known locally as the blue-chip swap, weakened as much as 1.7 percent to around 591 pesos per dollar Monday. Argentina’s official exchange rate dropped as much 1.4 percent, the most intraday since September 2020, bringing the gap between the two to more than 109 percent. 

Traders are feeling the pressure after Argentina’s securities regulator imposed new restrictions that bar investors from trading dollar-denominated sovereign bonds or American Depositary Receipts for 15 days after trading them in the local market — a common operation that’s used to skirt currency controls.

The restrictions, which were announced August 2, apply to local brokers and cover certain assets that liquidate within 48 hours. On August 7, the regulator ordered brokers to refrain from trading when they consider that they are in breach of the regulations, without waiting for a prior official warning.

Argentines go to polls on August 13 to pick presidential candidates vying to put a lid on triple-digit inflation and manage an economy that is heading for recession. Elections happen in October. 

While markets have been bracing for the primaries for weeks, devaluation expectations increased after voter polls — which are rarely made public in Argentina — showed a narrower gap between the opposition and the ruling party. The gap in voting intention between both parties narrowed to 2.4 points from 5.6 last month, based on an average of five polls, according to local broker PPI.

“We do not see relevant factors that can calm the dollarising pressure in these five days before the primaries,” PPI analysts led by Pedro Siaba Serrate, wrote in a Monday report. “The blue-chip swap level may be exuberant for an opposition triumph, but looks ‘cheap’ if the incumbent coalition comes out competitive from the primary elections.”

by Ignacio Olivera Doll & Scott Squires, Bloomberg

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