In May, financial dollars rose 18% and In just two days of June they already made a 5% jump and are flirting with $1,300. What until 10 days ago seemed like a specific rearrangement of the market is generating more and more noise among analysts.
Until last week, the awakening of alternative dollars after the long nap they had between February and April was attributed to the lowering of the interest rate last month by the Central Bank and to the obstacles that the government encounters in moving forward with the Bases law.
Now new dark clouds are appearing that threaten to continue making dollars rise. Among them, the chance that next week when the INDEC announces that May inflation was around 5%, the Central Bank will insist on a new rate reduction.
This is how Horacio Miguel Angel, Research Fellow of the International Bases Foundation, sees it. “The rise in financial dollars responds to a probable new drop in rates. The market seems to be validating the Government’s proposal in that sense, taking into account the latest placement on Monday that seeks to continue exchanging BCRA debt for Treasury debt and, in this way, reduce the quasi-fiscal deficit. In this context there are risks, and one of them is that in order to pay the bills, it is essential to maintain the fiscal surplus and that can affect social tensions”.
The analyst points out that “It is possible that they will try to bring the rate to 2% per month to match the crawling rate., which could be achieved within two or three months. The risk also exists in that sense, because we Argentines think in dollars and when in doubt, we quickly flee from the peso. “If the idea is to control the exchange rate with reserves, this lowering of rates will always have a latent risk.”
Another element that puts pressure on the dollar is the lack of certainty about when exchange restrictions will be lifted. “Maintaining the stocks, and the weight of the PAIS Tax at the collection level, continues to be a delicate issue in exchange matters. The market expects greater exchange freedom and the longer this issue is delayed we are likely to witness some runs in the short term“.
To this we must add the delay in the liquidation of the harvest, which has been moving at a lower rate than in previous years.
Alejandro Giacoia, from Econviews, notes that “andThe volume traded in the exchange market is currently half of what it was at the beginning of April. This may explain why the BCRA is buying fewer dollars. Furthermore, if there are fewer export liquidations, the CCL has less offer for the blend dollar.”
For Juan Manuel Franco, Chief Economist of SBS Group, “The dynamics of these quotes largely depend on the flows. Even with the improvement in agricultural settlement in May, total settlements fell, which implies lower cash supply with liquid for the “blend dollar,” something that could put pressure on the price, which in May advanced above inflation.”
Going forward, “the fundamental variable to follow are these flows, which will determine how much supply of CCL per “blend dollar” there will be, in a context in which rates were cut several times, reducing the attractiveness of the carry trade,” says Franco.
“The volume in the exchange market continues to fall. Today 172 million were traded and it is the lowest record since 01/15 (USA holiday) and if not we should go back to the previous one to 12/13 or the previous runoff. The pace of BCRA purchases has been significantly limited since the end of May“adds the consulting firm F2.
The Central Bank’s difficulty in obtaining reserves in the middle of the high settlement season also sets off alarm bells. More so now that it is not clear what will happen with the renewal of the Chinese swap, which if not renewed would take US$5 billion of the reserves.
This combo led to alternative dollars being overheated and the exchange gap being around 45%, which in turn reactivates the idea that the official dollar is backward. In turn, this fuels uncertainty about how long the crawling peg of 2% per month will be maintained and what will happen to the slowdown in inflation if the government is forced to take the official exchange rate to a higher notch.
