Dollar: how does its evolution affect the world in Argentina?

Various experts anticipate that the value of the dollar will experience significant weakening in the months ahead. Last week, the american banknote registered its biggest decrease since November, so, although it recovered slightly in the last two days, various analysts argue that the main global reserve currency came to a turning point. If these predictions are correct, the implications will be felt in the economies and world markets. Let’s see what’s up with the Argentina.

The global economic outlook throughto significant changes due to the decisions of the Federal Reserve (Fed) of the US and the increase in interest rates to control the inflation. However, the latest price data in that country turned out to be lower than expected, leading some analysts to speculate that the monetary tightening cycle is coming to an end.

However, it may be hoped that the currency runs the risk of deepening the fall if the Fed decides to end its fight against inflation and the European Central Bank (ECB) is forced to maintain high interest rates for a prolonged period.

The Argentine risk, an important piece

A key element for Argentina that arises after the weakening of the dollar is that investor interest is arousing for taking greater risks, which could rresult in a more significant capital flow towards emerging markets.

A weak dollar also means that commodities and raw materials become more accessible to international buyers, potentially can drive economic growth in those markets. In addition, the depreciation of the banknote makes investments in growing economies be more attractive for foreign capital, which in turn will drive the expansion and development of those countries.

Dollar: its impact on BCRA reserves

The weakening of the dollar on a global scale would bring a degree of relief to emerging countriesamong which is Argentina. This is mainly due, explains the economist Frederick Glustein in statements Ambitbecause the economy of the central countries, especially the USis entering an eventual recession and “that looks in the levels of activity, consumption and investment”.

Glustein maintains that the issue here is that it is not accompanied of a rate cut by the Fedbut “are likely to continue to rise”, something expected as a response to other global rate scenarios.

In this sense, he warns that there is a potential “correlate” in Argentina, given that the shares listed on Wall Street (ADRs) could go lower as the exceptional situation fades American and with thedanger of distrust in the dollar”, the peso could continue to fall, given that local agents they would continue to rely on that currencydespite what happens in the north, “so the Argentine recovery would take longer than necessary to recover and reserves would continue to fall”.

Falling dollar: one of lime and one of sand

The situation in Argentina poses an interesting paradox: if the international prices of the commodities decrease, global inflation tends to decrease, but it will imply a lower inflow of foreign currencywhich would also end up having an impact on the coffers of the Central.

The financial analyst Andres Reschini, raises in dialogue with this medium, that the weakening of the dollar is a variable that impacts “per se on the value of commodities and, therefore, could result in better prices for grain exports and by-products and, therefore, a higher foreign exchange income”, something that would not hurt the country at all.

But he warns that, in any case, that alone “does not guarantee prosperity“since there are still”many structural issues“to meet in Argentina”enough to attract a large mass of investment”.

Only time will tell if the dollar will deepen its depreciation over the coming months. However, it is clear that the currency is in a moment of transition and that its future is uncertain. And, in this context, Argentina has to be alert because a further weakening of the US banknote it would be more negative than positive for the reserves of the Central Bank.