Thursday , November 30 2023

What’s going on with Dollar vs Argentine peso (USD/ARS)?

Earlier this year, the Argentine peso (ARS) experienced a historic plunge against the US dollar (USD), hitting an all-time low. 

The Argentine government’s decision to devalue the currency by 18% and raise the benchmark rate to 118% contributed to this drastic depreciation. Ongoing economic mismanagement and multiple defaults on debt obligations had set the stage for this decline. 

Today, on November 20, the peso faced another setback following Argentina’s presidential election outcome, with the official USD/ARS rate reaching 353.8, marking a new low point for the currency.

USD/ARS official exchange rate. Source: Google Finance

What caused the peso’s decline today?

Peso’s latest downswing comes in the wake of far-right libertarian Javier Milei’s win in Argentina’s presidential election.

According to investors, his triumph could lead to significant interest in bonds and equities but put the Argentine peso under notable downward pressure. 

This is because, during his campaign, Milei vowed to “burn down” the central bank and dollarize the economy

Argentina’s markets are closed on Monday due to a local holiday, however, its local bonds, which are issued globally, remained largely flat in early trading. A more pronounced impact is expected after the opening bell in the US markets. 

Milei will not step into the office until December 10, and investors emphasized that he did not mention dollarization in his first speech, raising questions about how quickly he might scrap the peso. 

Peso’s black market performance

Following Miller’s victory, the peso also lost value on cryptocurrency exchanges – monitored by investors as a proxy for the black market. Apart from his dollarization plan, Milei is also known for his appreciation of Bitcoin (BTC), and believes the cryptocurrency is a natural reaction against centralized banking. 

KNG Securities expert Bruno Gennari said ARS was sitting at 1,009 against the dollar on crypto exchanges in early Monday trading, substantially lower than the 869 – 975 range in which it was fluctuating on Friday. 

Looking ahead, further downward pressure on the peso should be no surprise, given Milei’s previous pledges to “dynamite” Argentina’s central bank to do away with the “cancer of inflation.”

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