Argentina's Peso Starts New Year Leading Emerging Market Losses

  • Currency has tumbled 5.6% in first three days of 2016
  • Peso is catching up to forecasts for post-devaluation levels

Argentina’s peso fell for a third straight day in the new year, extending its status as the worst performing emerging-market currency following a devaluation last month.

The 1.7 percent decline Wednesday to 13.88 per dollar left the currency down 5.6 percent this year and brought it closer to the level analysts had expected when President Mauricio Macri announced he would let the peso float freely.

The peso, which tumbled 27 percent when Macri removed currency controls on Dec. 17 as part of a campaign to boost the country’s competitiveness, remained in the range of 12.9 and 13.1 pesos per dollar in the final weeks of 2015. That was stronger than had been anticipated by analysts and traders, who expected the peso to trade between 14 and 15 per dollar, in line with the country’s blue-chip swap rate used for financial transactions.

"The surprise was that we were seeing the exchange in the range of 13 pesos per dollar," said Leo Chialva, a partner at Delphos Investment in Buenos Aires. "The drop this week reflects the equilibrium that the market had been expecting."

Traders of non-deliverable forward contracts in New York are wagering that the peso will fall to 14.6 per dollar in three months. Analysts from Citigroup Inc. estimate the peso could trade as low as 16 per dollar this year, citing macroeconomic imbalances including reserves at a nine-year low and a high fiscal deficit.

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