Argentine currency traders are paring bets on peso fluctuations to the lowest in 11 months. Farmers are holding on to 23 percent of their record soybean harvest, fueling speculation that export proceeds will climb.
One-month implied volatility on peso options fell to 3.5 percent from 3.75 percent a month ago and 5.5 percent at the end of June. The measure, which reflects investor expectations of future swings in the peso, is the lowest since Sept. 21, 2009.
Traders are anticipating soybean farmers will keep moving dollars into the currency market, according to Buenos Aires- based Lopez Leon Brokers. The amount of the harvest farmers held at Aug. 25 is up from 17 percent at the same time last year, the Rosario Cereals Exchange said in a Sept. 3 report.
“The strong soy and other grain-related inflows of foreign exchange have certainly helped to reduce this volatility” in the peso, Clyde Wardle, an emerging-market currency strategist at HSBC Holdings Plc in New York, said in a telephone interview. “It’s made it easier for the central bank to manage the currency in a narrow range.”
Central bankers have been purchasing dollars in the foreign-exchange market to prevent the peso from strengthening and help Argentine manufacturers compete against imports. Foreign reserves climbed 5.3 percent this year, reaching a record $51.1 billion on Aug. 2. They totaled $50.6 billion after the government took dollars to make debt payments.
“If exporters sell all their dollars to the market, the central bank will boost its purchases to avoid a bigger loss of the country’s competitiveness,” said Javier Salvucci, an economist at Silver Cloud Advisors in Buenos Aires. He forecasts the peso will slide to about 4.10 per dollar by year end.
A central bank official who asked not to be named in accordance with internal policy declined to comment.
The peso has declined 3.8 percent this year to 3.9479 per dollar, the worst performance among the six most-traded currencies in Latin America, and touched a record low of 3.9540 on Aug. 31. It has gained 0.1 percent this month after sliding 0.3 percent in August, the eighth straight monthly decline.
Implied volatility on the peso has also declined after President Cristina Fernandez de Kirchner restructured in June $12.9 billion of defaulted securities that creditors left out of a settlement in 2005.
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps rose 33 basis points yesterday to 886, 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 rose 23 basis points yesterday to 708, according to JPMorgan. The gap is down from 846 on July 1.
Yields on benchmark 7 percent bonds due in 2015 rose 9 basis points today to 10.93 percent, according to Bloomberg market average pricing. Warrants linked to growth in South America’s second-biggest economy fell .01 cent to 11.00 cents, according to data compiled by Bloomberg.
Argentine farmers had sold 42 million tons of the record 54.6 million tons they harvested this year as of Aug. 25, according to the Rosario Cereals Exchange. Last year, they had sold 25.8 million tons of the 30.9 million tons harvested at that date, the exchange said.
Farmers have been holding on to grain in part as a bet that the two-month rally that pushed soybean prices up 10 percent on the Chicago Board of Trade will continue, said Gustavo Quintana, a currency trader at Lopez Leon Brokers. Argentina is the world’s largest exporter of soy oil. Soybean oil is forecast to rise to 43 cents a pound by 2011 from the current price of 41.27, according to data compiled by Bloomberg.
“We’ll see another wave of sales” if prices climb further, said Matias del Valle, an analyst at Granos del Parana, a grain brokerage in Buenos Aires.
Economists predict the peso will slide to 4.1 per dollar by year-end, according to the median of 13 estimates in a Bloomberg survey. The consensus forecast was 4.2 per dollar a month ago. Wardle at HSBC forecasts a year-end rate of 4.1. Quintana predicts it will trade at about 3.9450 in coming days before reaching 4 per dollar in December.
“For now the peso is relatively stable and is unlikely to weaken,” Quintana said.