Argentina’s dollar rates, EMBI index surge while bonds, shares plummet

‘The administration’s ability to govern is affecting the prospects for the future and in the short term’

Argentina’s key financial indicators showed signs of unrest on Tuesday, with experts pointing to an increasingly strained political context.

The parallel U.S. dollar exchange rates and the emerging market bond index jumped, while the country’s stocks in the New York exchange and dollar-nominated bonds fell. The blue-chip-swap (contado con liqui), and local bond market (MEP) exchange rates reached all-time highs on Tuesday, AR$1,333.7 and AR$1,309.8 respectively. Before the end of the day, they eased to AR$1,311 and AR$1,280.8 — settling at a 1.1% and 0.9% increase compared to the day prior.

Meanwhile, the informal blue dollar rate increased by 2.4% to AR$1,265.

The S&P Merval, an index that measures the performance of Argentina’s most important stock shares, fell 2.7%. In the New York exchanges, all Argentine company shares fell. Dollar-denominated bonds also fell sharply and the emerging market bond index, which calculates the chances of default, closed at 1,494 points, 5.6% higher than Monday.

Analysts said the recent Central Bank’s interest rate cuts, exporters withholding their U.S. dollars, and the political situation are to blame for the dollar surge.

“It seems that several factors combined and finally boosted a price raise that was not foreseen for these days,” Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, told the Herald

Interest rates continue to be negative, the discussion of the Ley Bases seems to be delayed a little and this disarms positive expectations regarding its approval,” Quintana said, adding that the “somewhat turbulent political panorama” added to the uncertainty and stimulated the purchase of U.S. dollars.

Sebastián Menescaldi, associate director of EcoGo consultancy, also told the Herald that “there is a political factor” in the equation. “The administration’s ability to govern is affecting the prospects for the future and in the short term,” he added.

Moreover, the Cereal Exporting Centre and the Argentine Chamber of the Oil Industry reported bringing in US$2.61 billion for grain exports in May — a 37% decrease in dollars sold to the Central Bank compared to May 2023, when the country was undergoing a historic drought. The Central Bank bought 25% less dollars overall in May than in April. Analysts said that exporters are hoping for a faster peso devaluation to sell their U.S. dollars.

Local media outlets also reported that investors moved away from the peso because Argentina may face a US$5-billion payment for its currency swap with China following bilateral tensions.

Menescaldi also pointed to the publication of the latest U.S. Federal Reserve’s minutes, in which its members showed concern over persisting inflation and expressed the possibility of raising interest rates. “I believe that this had a negative impact on emerging markets, both Brazil and Mexico, and Argentina has a much higher volatility than the rest of them,” said Menescaldi.


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