I want to start the note with the graph of the exchange gap, which represents the difference between the official dollar and the free dollar (in this case, the Cash with Liquidation). Currently around 77%, that is to say that the free dollar is 77% more expensive than the official one.
The colors are to differentiate Kirchnerism (light blue) from Macrismo (yellow). It can be clearly seen how the ruling party always coexists with a high exchange rate gap, while the macrismo does not, since it did not have an exchange trap (at least until recent months).
The free dollar (Counted with Settlement), fell at the beginning of the year due to the agreement with the IMF, the record settlements of the field and the reappearance of the “CarryTrade” (selling dollars to earn an interest rate in pesos with the idea of later buying dollars again).
Without a doubt, the carry trade was the star of the first quarter. With a peso that appreciated 15% added to the rate generated by inflation-adjusted bonds (which was a record), yields in dollars were above 20%.
Reasons for the recent rise
It is worth clarifying that, despite there being internal factors that motivate the increase in these weeks, much of it is explained by what is happening in the world, especially in emerging markets.
The dollar strengthened globally in a scenario of expected rate hikes by the Fed. The uncertain context due to the war between Russia and Ukraine also influences, which generates greater strength in the dollar. This appreciation generates a weakening in the rest of the risk currencies, such as the Mexican peso, the Chilean peso, the Brazilian real, and the Chinese yuan, among others.
That said, Argentina plays a game apart. Why? Due to its internal problems that remain unresolved: fiscal deficit, a BCRA that does not accumulate reserves and greater controls by the FIU.
How much can the dollar go?
The official dollar is expected to end 2022 at $154, according to the REM (Survey of Market Expectations), a survey carried out by the BCRA to different market analysts.
The value of the Cash Settlement dollar will depend on several factors. One of them is the exchange gap.
- A possible estimate, taking into account the forecast of the official dollar, is to assume that the gap remains as it is now until the end of the year. So if we add 75% to the estimated price of $154, we would arrive at a free dollar in the area of $270 by the end of the year (assuming that the official estimate of the REM dollar is correct).
- Another possible estimate would be to take the Cash with Settlement dollar at the end of 2021 and, based on the estimated inflation for 2022, see what its price should be at the end of the year if it maintains its purchasing power. Under this analysis, the prognosis is not encouraging. Last year, the Settlement Cash dollar closed at $200. Taking into account an expected inflation of around 60% by 2022, the price of the dollar would be $320 at the end of the year.
The dollar, in Argentina, as long as the same problems as always (deficit and inflation) continue to exist, has only one direction and it is on the rise.
Recently, after several weeks “slept”, is waking up. As is known, in Argentina the dollar “never go down”, it just picks up momentum.
To finish, I want to invite you to download for free a report that I prepared so that you can face the next crisis and have the tools to know how to beat the market. I think it will be very useful to you. You can download it at the following link: Financial Letter – dollar.
Source: Ambito
