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Argentine Peso Seen Avoiding Collapse After Hitting Record Low

Argentine Peso Seen Avoiding Collapse After Hitting Record Low

(Bloomberg) -- Argentina’s central bank has taken enough steps in the past month to prevent the recent slump in the peso turning into a repeat of last year’s rout, according to strategists and traders.

The world’s worst performing currency this year extended a seven-day slide Tuesday, reaching a record low of 42.72 per dollar, amid a negative day for most emerging-market currencies. The peso has fallen 6 percent since March 15, weakening every day.

“Do I think the currency is going to sell-off another 30 percent like it did last year? Probably not. Will it weaken over time? Yes,” said Brendan McKenna, a currency strategist at Wells Fargo in New York who sees the peso reaching 51 per dollar by year end. “The steps they have taken will take some time to actually filter through to the real economy.”

Argentine Peso Seen Avoiding Collapse After Hitting Record Low

The central bank slashed its year-end target for the money supply by 10 percent two weeks ago and adjusted its currency band, reducing the projected decline in the peso. Bank President Guido Sandleris said the measures were needed after consumer prices rose more than expected for a second consecutive month in February. The bank’s withdrawal of liquidity from the system has pushed interest rates to almost 67 percent, the highest in the world.

Here is what analysts are saying:

McKenna, from Wells Fargo:

  • “Another 2018 doesn’t seem likely and I think the sell-off will be more gradual with some extra volatility as we get closer to the election”
  • Wells Fargo forecasts for USDARS are at 43 in Q1, 47 in Q2, 49 in Q3 and 51 in Q4.
  • “One of the things that’s lost with Argentina right now is they are actually doing the right things as far as trying to stabilize the economy and the currency. It hasn’t necessarily been as effective as the government would have hoped, but still taking the right steps.”
  • “The last inflation print was definitely a setback”
  • “There could be some Cristina risk starting to get priced in to,” McKenna said, referring to former President Cristina Fernandez, who may run in October’s presidential election and is unpopular with investors.
  • “There was a local election a week or two ago where Cristina’s candidate outperformed Macri’s”

Alejandro Cuadrado, a senior currency strategist at BBVA in New York

  • "The medium- to long-term trend should be a continued slide, but there will be attempts to contain it"
  • "There are factors that will keep the peso away from a repeat of 2018: valuation, treasury sales, and some USD offers by exporters"
  • Cuadrado adds that month-end dollar seasonal demand doesn’t help prices
  • "ARS inflation and upward moving band take you consistently higher on USDARS and that should be the medium-term peso directionality"
  • "There are no big flows despite some exporter liquidation; the Treasury has not started selling yet"

Gustavo Quintana, a currency trader at PR Corredores de Cambio in Buenos Aires

  • "There’s very little offer, much of it is related to end-of-month seasonal pressures"
  • "We’re in a cycle where dollar sellers retreat and the market becomes increasingly distorted"
  • "The weak market abroad is also adding to the peso weakness"

To contact the reporters on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Carolina Millan in Buenos Aires at cmillanronch@bloomberg.net

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net, Brendan Walsh

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