Argentina faces an unprecedented scenario with US intervention in its foreign exchange market, but demand pressure threatens to derail efforts to stabilize the peso.
Argentina faces a unpublished scenario in its turbulent economic history: direct intervention of the United States Treasury in the local exchange market. Since Thursday, October 9, this strategy has materialized three times—on the 9th, the 15th, and again this Thursday, the 16th—with undisclosed amounts and results that reflect an increasingly complex dynamic.
The first intervention generated an immediate impact and surprising. The news, unexpected for operators, triggered an intraday drop in the dollar which continued at the beginning of this week, with a depreciation of more than $100 since the announcement. However, the initial euphoria quickly dissipated. By Tuesday, just 48 hours after the measure, the dollar stopped losing ground and began to rebound.
He Wednesdaythe bullish trend intensified, leading the US Treasury to intervene again. On this occasion, Initial sales achieved a temporary drop, but the market reversed the movement on the same dayclosing with an increase of 1.47%, equivalent to the level prior to the intervention. Yesterday, Thursday, the dollar rose 3%, and a new Treasury incursion – limited to the last 15 minutes of the session – did not prevent a final advance of 1.60%.
Dollar, intervention and buying pressure
Is the market losing its mind or openly defying the US government? Neither of the two options seems to fit reality. The key lies in an elementary analysis of supply and demand, principles that govern any market, including the exchange market. The Argentine government seeks to anchor the dollar at a specific price, but at that level demand far exceeds available supply. In a free market, the price would adjust upward until both sides of the equation balance. However, by imposing an artificial cap, someone must cover the gap between what buyers want to buy and what sellers are willing to offer. For the plaintiffs, the identity of the supplier – be it the Central Bank of the Argentine Republic (BCRA), the Argentine Treasury or the United States – is irrelevant. At that price, buying pressure persists.
In Argentina, The market already takes for granted that the exchange bands, as they are known until now, are finishedand that is why the intense pressure on the exchange rate is observed. This pattern will be maintained at least in the next six wheels. Demand will continue to push the dollar toward that level, regardless of who absorbs the difference. Although the US Treasury has the financial capacity to sustain this intervention – supported by a bailout of around US$40 billion through a private agreement with international banks – its role does not include stabilizing foreign currencies indefinitely. So far, there are no indications in the bailout negotiations that a specific line is contemplated to support the Argentine peso.
The anomaly is obvious: The US Treasury cannot and should not replace the functions of the BCRA or assume the direction of local exchange policy. This episode, as extraordinary as it may be, underlines the urgency of restoring a framework of normality in Argentine monetary management. Otherwise, interventions, no matter how powerful, could prove insufficient in the face of market forces.
Source: Ambito
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