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ECONOMY | 27-04-2022 20:26

Volatility roars back to Argentina's FX market on commodities drop

Volatility has come roaring back to Argentina’s currency market.

Volatility has come roaring back to Argentina’s currency market after the gap between Argentina’s official and parallel exchange rates surged to its widest in more than two months – just days after narrowing to the smallest in a year.

The spread climbed to around 85 percent after the blue-chip swap, a parallel exchange rate derived from buying securities locally and selling them abroad, tracked other Latin American currencies lower in the past week amid a drop in commodity prices. The official exchange rate is fixed by the Central Bank in a gradual decline against the dollar.

It is a sharp change in fortunes for the parallel exchange rate. The gap – often viewed as a rough approximation of how desperate investors are to get money out of Argentina – had narrowed to the lowest in a year on April 14 amid optimism over a new deal with the International Monetary Fund. 

What changed is the global outlook as the Federal Reserve signaled faster rate hikes and lockdowns in China undermined this year’s rally in commodity prices, sending Latin American currencies tumbling. After leading gains for much of the year, Brazil’s real, the Chilean peso and Colombia’s peso are now among the worst performing major currencies this week.

And as investors look for safe havens, the Argentine peso inevitably weakens, said Alberto Rojas, an economist at Credit Suisse.

“We’re seeing some contagion from the global trend,” said Alejandro Cuadrado, head of Latin America foreign-exchange strategy at Banco Bilbao Vizcaya Argentaria SA in New York. Argentina’s blue-chip swap “is not a liquid market nor is it very stable, and there may be flows that are affecting it on both sides of the exchange.”

by Ignacio Olivera Doll & Scott Squires, Bloomberg

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