The confirmation that Donald Trump was re-elected president raised doubts about how it may affect an appreciated dollar in the long term and whether it forces the Ministry of Economy to change its exchange rate policy.
He Donald Trump’s victory generated a first reaction in the dollar. He dollar worldwidel reached its biggest daily rise since March 2020, against its peers after Donald Trump was re-elected President. In that framework, the dollar index —which measures the performance of the greenback in relation to a basket of six other internationally relevant currencies— rose 1.67% to 105.10, having reached 105.44, its highest level in four months. In this framework, the question arises as to whether the new regional panorama changes or not the government’s perspective of making changes to the official bill.
In principle, it is important to highlight as the other side of the strong rise in the dollar, the main Latin American currencies are devalued and the price of commodities is becoming cheaper. If this trend consolidates, A stronger dollar will change international trade and will have an impact on Argentine finances.
The relationship between the appreciation of the dollar and the price of commodities is inverse, which means that when the US currency strengthens, product prices usually decrease. This will have a significant impact on countries such as Brazil and Argentina, whose economies depend heavily on the export of raw materials.
What sectors would be harmed if the dollar continues to strengthen?
According to PPI, since the country is under the stocks, the Argentine peso is unlikely to depreciatecontrary to the rest of the currencies of the world and the region. That is to say, the chances that the real appreciation of the peso will deepen are high. For reference, since the dollar began to strengthen on 09/27, the multilateral real exchange rate index (ITCRM) fell 4.7%, which was mainly explained by the 6.9% drop in the exchange rate. bilateral real exchange with Brazil, the country with the greatest weighting in the ITCRM (29.8% as of August). To take into account what it means that our trading partners depreciate and we do not, the ITCRM will deteriorate 0.4% today only due to the 1.5% rise in the dollar in Brazil.
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According to a first analysis by PPI, prior to Trump’s victory The Argentine peso was already close to the levels inherited by Sergio Massa. “The strong jump in the official dollar of 118.3% on 12/13 was practically completely consumed when Milei took office. Yesterday the ITCRM was barely 10.4% above the level prior to assuming the new management ($901 in pesos today), 11.9% above the December 2015 minimum ($889 today) and only 0.8% below the 1997-1998 average before Brazil abandoned the “Real Plan” ($1,003 today). However, the real bilateral exchange rate with Brazil already equals the inherited levels, which is why it exceeds the post-Convertibility minimum of September 2015 by 9.8%,” the broker explained.
What are the risks of such a valued peso?
According to the point of view of PPI analysts, the first consequence is that the current account could deepen its deficit (in goods and services), therefore a greater financial account surplus would be necessary.
With money laundering aside, the “ace up the sleeve” would be an agreement with the International Monetary Fund given the greater influence of Donald Trump.
What can happen with crawling peg?
For weeks, the discussion in the market has been when the Government will make the decision to lower the crawling peg. Regardless of whether it is sooner or later, this international panorama It does exert some pressure to change the exchange rate policy, especially next year. In that sense, Andrés Reschini, analyst from the F2 Consulting firm told Ámbito: “Since July the peso (CCL) has been appreciating and there are quite a few who, at least until yesterday, were talking about a possible drop in the crawl. So we have to see how much pressure it adds. in the medium/long term and If it is enough to force a change in strategy“concluded the analyst.
Source: Ambito
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