What, Me Worry? Argentine Peso's Apparent Calm Masks Volatility

(Bloomberg) -- Chart the closing price of the Argentine peso this week and you’ll see something pretty remarkable: The globe’s worst-performing major currency barely weakened past 25 to the dollar -- the floor that the central bank has vowed to defend.

That doesn’t mean Argentina has won. Peel away a layer to look at intraday price action and a vastly different picture emerges. In fact, the peso has gyrated 5.6 percent this week, hardly a confidence-inspiring performance. The currency’s historic volatility remains the world’s highest over a time horizon stretching from one week to one year.

What does that mean? A couple of things, none of them especially uplifting for South America’s second-largest economy. For one, it suggests there’s still pressure for the peso to extend its 24 percent slide against the dollar this year, even as President Mauricio Macri’s team seeks a stabilizing $30 billion credit line from the International Monetary Fund. That package might need to be as much as $50 to $60 billion to completely alleviate concern, according to Lazard Asset Management’s Denise Simon.

Another, perhaps more troubling conclusion: This isn’t by any means a normal currency market. The peso’s one-month volatility is above 40 percent, more than double that of South Africa’s rand, the runnerup among 31 major developed and emerging-market currencies tracked by Bloomberg. Few investors, apart from the central bank, appear willing to buy pesos at this point.

Traders say bid-ask spreads are still wide and liquidity has dried up. While few consider the currency to be overvalued by much, not many say it’s cheap, either. Risks abound that the peso will overshoot fair value.

If there’s one silver lining, though, there’s this: So far, no one has dared challenge the central bank’s $5 billion bid that’s kept the peso at 25.

©2018 Bloomberg L.P.