Argentina's Peso Tumbles as Exporters Await Better Exchange Rate

  • Currency leads emerging-market declines as it sinks 3%
  • Lack of grain sales saps dollar flows into the country

Argentina’s peso tumbled the most since President Mauricio Macri allowed the currency to float freely as a slowdown in grain sales trimmed dollar flows into the country just as importers’ demand for foreign currency picked up.

The peso fell 3 percent to 13.5916 per dollar at 2:06 p.m. in Buenos Aires, according to prices from the MAE electronic platform, leading declines among emerging-market currencies for the second day in a row.

Farmers who had rushed to sell crops after the 27 percent devaluation last month are now waiting to see if the peso will fall further before completely emptying their storage bins, and that means grain buyers are bringing less foreign exchange to the country, according to Gustavo Quintana, a trader at Rabello & Cia. in Buenos Aires. At the same time, importers are seeking more dollars in the currency market as they ramp up purchases again following the devaluation.

"Exporters thought the exchange rate was going to be higher, and are waiting for it to settle at a higher level, closer to 14," Quintana said. "There’s very little dollar supply, so the demand side has been more active."

Traders of non-deliverable forward contracts in New York are wagering that the peso will fall to 14.7 per dollar in three months.

Last week, Argentina’s Finance Ministry sold $1 billion of Bonar bonds to importers that needed greenbacks to settle dollar debts, less than $5 billion the government offered. Importers are showing a clear preference for buying dollars via more straight-forward transactions in the currency market, according to Quintana.

"This is also adding demand and pressure to the market," he said.

Argentina’s central bank hasn’t intervened in the peso market since the float, which has allowed reserves to grow by $1 billion. With the central bank’s foreign currency holdings still at a nine-year low, policy makers aren’t likely to intervene at these levels, according to Dirk Willer, a foreign exchange analyst at Citigroup Inc., who expects Argentina’s currency to fall to 16 per dollar by the end of this year.

"They don’t have a lot of reserves, so to start intervening now, at levels people consider to be too strong, is presumably wasting reserves," Willer said from New York.

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