Argentine Peso Gets Lift From Record Soy Harvest as Volatility Gauge Sinks
Argentina's president Cristina Fernandez de Kirchner. Photographer: Norm Betts/Bloomberg
Argentine currency traders are reducing expectations for peso fluctuations to the lowest since March as a record soybean harvest swells export revenue in South America’s second-biggest economy.
One-month implied volatility on peso options fell to 3.75 percent from 5.85 percent a month ago and 6.25 percent in May. The measure, which reflects investors’ expectations of future price swings in the peso, is the lowest among the six most- traded Latin American currencies.
The highest soybean prices in six months are prompting Argentine farmers to export the oilseed that they stored up during this year’s record 55 million-ton harvest, helping shore up a currency that has led declines in the region this year. The peso gained for a second straight week, climbing 0.1 percent.
“You now have a larger, increasing stock of dollars coming in and it makes the currency environment more manageable for the government,” said Enrique Alvarez, head of Latin America fixed- income research at IDEAglobal in New York. “These inflows are one of the reasons implied volatility won’t spike higher.”
The peso has weakened 3.3 percent this year and plunged 75 percent in the past decade, when the government was shut out of international debt markets following its $95 billion bond default in 2001. Argentines pulled $14 billion from the country in 2009, equal to 4.5 percent of gross domestic product, Fitch Ratings said in a report yesterday.
‘Greater Ammunition’
The central bank will likely take advantage of the rising dollar supply from soybean farmers to buy the U.S. currency and add to a record $50.9 billion of foreign reserves, said Aryam Vazquez, an emerging-markets economist at Wells Fargo & Co. The central bank purchases will limit peso fluctuations, he said.
Dollar sales by soybean and soy oil exporters rose 13 percent last week to $724 million, bringing this year’s total to $12.1 billion, according to the Buenos Aires-based Argentine Oilseed Exporters Chamber. Soybean prices have climbed 8.5 percent this month on the Chicago Board of Trade. Argentina is the world’s largest exporter of soy oil.
“The main take away from this is that the government has the resources” to control currency swings, Vazquez said in a telephone interview from Miami. “This gives them greater ammunition.”
Debt Restructuring
Implied volatility on the peso also declined as foreign investors bought local bonds after President Cristina Fernandez de Kirchner restructured $12.9 billion of defaulted securities that creditors left out of a settlement in 2005.
Peso-denominated bonds due in 2018, known as Bogars, have jumped 12.7 centavos this month to 129.2 centavos per peso, cutting the yield 153 basis points, or 1.53 percentage points, to 12.73 percent, according to data from Citibank’s local unit.
“Soy prices have improved recently and that’s stimulated some selling” by exporters, said Gustavo Quintana, a currency trader with Lopez Leon Brokers in Buenos Aires. “There are also a lot of investors coming in to buy bonds.”
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 25 basis points yesterday to 856, according to data compiled by CMA DataVision. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries fell 29 basis points to 688, according to JPMorgan. The gap is down from 846 on July 1.
The peso was little changed today at 3.93 per dollar. Economists predict it will weaken to 4.2 per dollar by year-end, according to the median of 13 estimates in a Bloomberg survey. The consensus forecast was 4.5 per dollar a year ago.
“Commodity prices, particularly soy prices, have become very favorable to government coffers,” said Alvarez, who has been covering Latin American markets for 15 years. “That has also taken some of this pressure off the exchange rate.”
To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net; Boris Korby in New York at Bkorby1@bloomberg.net
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