Argentina: Argentine peso gains ground in June
July 8, 2019
The Argentine peso strengthened in the last few weeks, thanks to positive domestic news and USD weakness. On 5 July, the currency traded at 41.84 ARS per USD, which represented a 7.4% appreciation over the same day of the previous month. Nevertheless, the peso lost broadly a third of its value compared to the same day last year and was 10.4% lower than at the beginning of the year.
The currency’s recent appreciation reflects both internal and external factors. On the internal front, the peso jumped on the government’s announcement in the second half of June that a primary fiscal surplus of 0.2% of GDP in the January-May period had been achieved. This was because this keeps the country on track to meet the fiscal goals outlined in the IMF standby agreement. Moreover, President Macri’s choice of Miguel Pichetto, a moderate Peronist, as his vice-president candidate for re-election in October was celebrated by markets, offering further support to the peso, as analysts consider the move could increase Macri’s chances to win. On the external front, easing tensions between the U.S. and China following the G20 Osaka meeting propped up the peso, while rising expectations of a near-term interest rate cut by the Fed put some downward pressure on the USD.
Looking ahead, the peso is expected to depreciate further due to still-high inflation, policy uncertainty and fragile investor confidence, although the scope of its weakening should narrow compared to last year thanks to the Bank’s tight monetary policy stance.