Frantic rise of the blue dollar and financials: what is behind the jump and what the market predicts

The causes behind this movement, which worries the market, beyond the fact that many operators expected an acceleration of the bullish dynamics, appear, among other factors, the bad inflation data for March, 7.7%, which became the highest figure for a month since April 2002; the delay in prices with respect to the monetary issue, both in previous months and due to the effects of the agricultural dollar, from which the Central Bank (BCRA) pays an exchange rate of $300 (and not $217, the current price of the wholesale exchange rate) to agricultural exporters; the scant reserves of the BCRA and the doubts about the effectiveness of the agricultural dollar in terms of foreign currency income; to which various types of rumors were added (for example a change at the head of the Ministry of Economy: departure of Massa, arrival of Aracre, who resigned this Tuesday as head of the Cabinet of Advisors to the Presidency), together with the growing strategies of exchange rate coverage, common in pre-electoral periods.

For Adrian Yarde Buller, Chief Economist of Facimex Valores, “the rise is not too surprising considering that we came from some months of relative stability, where the implicit exchange rate in financial assets had lagged behind the monetary issue we had.” In this sense, the specialist remarked to Ámbito that “some appreciation was noted and it seemed reasonable to expect that the exchange rate would begin to react as the monetary issue grew within the framework of the new agricultural dollar”, although “probably, the inflation data for March known on Friday has acted as a trigger”.

For his part, the financial analyst, Christian Butler, He warned this medium that “as always these movements clearly cause concern in the market.” However, “if the film is analyzed and not so much in the photo of the day, we will see that it is simply adjusting to the rest of the prices that have risen in the economy”, which move at a rate of between 7 and 8% per month. So far in 2023, the blue dollar accumulates a rise of $72 or 20.8%, while, in the first quarter, inflation registered an advance of 21.7%. “It is impossible to believe that the dollar is going to stand still in this context. Usually, he does the plank first, and it goes well below daily inflation and then suddenly he jumps. So there all the alerts are turned on ”, Butler added.

Given the strong escalation of the blue and financial dollars, producers slowed down sharply on Tuesday the liquidation under the agricultural dollar scheme. In fact, this Tuesday It was the worst round since the agricultural export incentive program was launched: only US$36 million were liquidated, well below the US$153 million of the previous day (it is worth noting that in part could affect the strike of grain receivers). Consequently, the BCRA only acquired barely US$1 million in the day. “The question is beginning to be sown about whether the new agricultural dollar will be enough to avoid a devaluation,” they warn from PPI.

For now, the dollar futures market took note of this and the implicit rates shot up sharply in all terms: they advanced between 960 and 2,530 basis points to be in the range of 107.8 / 164.2% of TNA (vs 82.5 / 153.1% on Monday), according to PPI. In the same sense, the crawling peg accelerated to a TNA of 89.4% or a TEA of 144.3% this Tuesday, being the highest devaluation rate since the beginning of last December.

“Faced with the coverage that electoral processes usually activate and the monetary issue associated with the soybean dollar, the free dollar and the financial ones are rearranging themselves since they would also not have space to accumulate a greater delay under a scenario of acceleration of the nominality of the economy”, argued the economist Gustavo Ber.

Key to the market: what the BCRA will do with the rate

Given the acceleration of inflation, the market is now focused on what the BCRA board will do with respect to the reference interest rate. Currently, the Fixed Term and Leliqs rate is 78% per year (equivalent to a TEA of 113.3%). “If the interest rate is left unchanged, it would remain in negative territory in real terms, since with 7.7% in March, the inflation rate for the first quarter (annualized) stands at 119.6% year-on-year ”, warn from Cohen Financial Allies.

For their part from PPI, they affirm that “At this rate of inflation and rates, the carry trade would be losing its appeal. With inflation traveling from a minimum to 125.2% annualized, there is no real rate in pesos that is in positive territory. Rather, assuming an expected inflation of 8% in April (high-frequency measurements indicate that inflation would have continued to accelerate in the first days of the month), the ex ante real rate for a month on a retail fixed term stands at -15.4% per year, considering a TNA of 78%. In other words, it is at the lowest levels since July, prior to Massa’s arrival at the Ministry of Economy.

Thus, from PPI they consider that the BCRA “I would have no choice but to raise the rate this Thursday to avoid a spiraling of the nominal and try to contain the pressure on financial dollars” which, according to their calculations, “in real terms is closer to the recent lows of the Fernández administration than to its highs, even though the macro fundamentals deteriorated greatly.” At the same time, considering the evolution of the number of pesos in the economy (private M3), the theoretical value of the CCL would be located at $483.6, which is 13.5% higher than the $426 at the close of this Tuesday.

It should be noted that this figure shows a photo up to this moment, but does not catch the film that is to come. “This theoretical value will be corrected upwards as a new monetary issue per agricultural dollar, debt rescue in pesos, direct monetary financing to the Treasury and the quasi-fiscal deficit takes place,” they explain.