Wall Street traders pump up Argentine peso as currency controls bite

A woman shops in a greengrocery at a local market, in Buenos Aires, Argentina August 23, 2019. — Reuters pic
A woman shops in a greengrocery at a local market, in Buenos Aires, Argentina August 23, 2019. — Reuters pic

BUENOS AIRES, Sept 3 — Argentina’s peso surged this morning, pumped up by Wall Street traders back after a long holiday weekend cheering President Mauricio Macri’s capital controls aimed at protecting the beleaguered currency.

The peso was 5.36 per cent stronger at 56 per US dollar, traders said, after it eked out a small gain yesterday. Argentina country risk also fell after soaring last week to levels not seen since 2015.

The peso rise gives some relief to Macri, after a shock primary election battering last month sparked a sharp crash in the country’s bonds, equities and the peso, which lost around 26 per cent of its value against the greenback in August alone.

In Europe, the pounding of Argentina’s bonds also eased after they had fallen to record lows yesterday, while there were tentative gains in some foreign-traded bank shares.

Frankfurt-listed American Depositary Receipts (ADR) of Grupo Financiero Galicia were up almost 1 per cent, having tumbled 9.15 per cent yesterday, but Banco Macro SA’s ADRs slipped again. Brokers were quoting marginally higher prices for Argentina’s badly mauled sovereign debt in Europe.

The black market peso, which had fallen yesterday, rose today, although not as sharply as the official spot rate.

Macri’s pivot to currency controls, which he abolished when he came into power in 2015 touting his free-market credentials, could though hurt the country’s “emerging market” status with index provider MSCI.

MSCI said late yesterday the move to restrict the movement of capital could cause “material deterioration of an equity market’s accessibility,” and could lead to the “reclassification of the MSCI Argentina Index to Standalone Market status.”

However, since only foreign-listed shares are part of the index “MSCI believes that the MSCI Argentina Indexes remain replicable, despite the introduction of capital controls.”

Any reclassification of Argentina in the widely followed indexes would first require a public consultation from MSCI.

On Sunday, the government authorised the central bank to restrict purchases of dollars as it burns through its reserves to prop up the peso. The currency controls were a 180-degree turn for President Macri, a free-markets advocate who abolished capital controls after he came to power in 2015.

It was the government’s latest attempt to stabilize the peso, which has lost 28 per cent of its value since opposition presidential candidate Alberto Fernandez emerged as the clear front-runner in the Aug. 11 primary election.

Fernandez and his running mate, former President Cristina Fernandez de Kirchner, are considered a riskier prospect by investors, who fear Argentina could return to the interventionist policies of her former government.

Yesterday, central bank president Guido Sandleris called Argentina’s financial system “strong” and said the bank would adhere to its strict monetary policy, despite the currency restrictions.

Sandleris, speaking at a press conference, said the bank was in talks with the IMF to “redefine” the monetary goals for September under its US$57 billion financing agreement. — Reuters

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