Argentine Peso Forwards Tumble as Parallel Rate Gap Widens

Argentina’s peso tumbled in the forwards market on speculation that a weakening in the parallel exchange rate will prompt the government to quicken the slide in the official rate.

Six-month non-deliverable peso forwards dropped 2.8 percent to 5.335 per dollar, the weakest level since November 2008. The three-month forwards fell 0.8 percent to 4.94 per dollar, the lowest since July 2002, and the one-month forward sank 2.1 percent to a record 4.735 per dollar.

Investors are speculating that President Cristina Fernandez de Kirchner may devalue the currency to bolster the competiveness of Argentine exports. The peso has weakened 8.5 percent in the past 12 months in the spot market to 4.4637 per U.S. dollar as the Brazilian real dropped 21 percent, making Argentine goods relatively more expensive.

“There’s the perception that the currency is overvalued,” said Boris Segura, a Latin America analyst with Nomura Securities International in New York.

Currency controls imposed by Fernandez have pushed investors in search of dollars to parallel currency markets. The rate for the peso in the unregulated street market is about 5.7 per dollar. The so-called blue-chip rate, set by the price differential between Argentine assets bought locally and sold abroad, weakened 0.2 percent to 5.9524 per dollar today, pushing the gap with the official peso to a record 33 percent.

The spread may make it harder for the government, which controls the official rate by buying and selling dollars in the spot market, to sustain the currency, said Flavia Cattan-Naslausky, a markets strategist at Royal Bank of Scotland Group Plc.

“This is when all these distortions start to show,” she said. “They’re exacerbated by the lack of liquidity and the fact that so many dollars have already left the system.”

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