Argentine Exchange Rates Are Converging on Macri's Lead in Polls

  • Black market is strengthening while blue-chip swap weakens
  • Macri is leading all opinion polls ahead of Nov. 22 runoff

Two weeks before Argentina’s presidential runoff, the currency market is already indicating that opposition candidate Mauricio Macri will win.

After Macri’s surprise performance in the first round on Oct. 25 and his continued pledge to let the peso float and remove capital controls on his first day in office, the difference between the 14.45-per-dollar black market exchange rate and the blue-chip swap, a rate derived from securities trades, has narrowed to just 0.23 pesos. That’s because the blue-chip swap market is already setting the price of the peso before the vote at 14.22 per dollar, a 1.5 percent depreciation since the first-round ballot three weeks ago.

The official rate, which is closely controlled by the central bank with a crawling peg and is nearly impossible to access, trades at 9.6 per dollar. Outgoing President Cristina Fernandez de Kirchner implemented capital controls immediately after her re-election in Oct. 2011 to try to slow capital flight. Since then the official rate has tumbled 56 percent and the restrictions spawned a series of different exchange rates for everything from using credit cards abroad to buying real estate. The expectation of a single rate in Argentina for the first time since 2011 is prompting the market to move in that direction, according to Elypsis.

“A lifting of controls, regardless of the impact on the official rate, should at least fuel a convergence of the black and blue chip,” Eduardo Levy Yeyati, director of economic research and consulting firm Elypsis said. “The expectation of a lifting of the controls sooner rather than later is correcting the anomalies and aligning the prices toward a reasonable unification scenario.”

The blue-chip swap is a mechanism used to trade pesos and foreign currency by swapping stocks and bonds traded in both currencies at an implicit exchange-rate set by the financial market.

Macri, who would take office on Dec. 10, hasn’t said if he would initially maintain restrictions on individuals and companies buying dollars in order to safeguard reserves which are at a nine-year low. Ruling party candidate Daniel Scioli has said he would initially maintain controls and look to reduce them once reserves are rebuilt. He also vowed to leave the official rate stronger than 10 through January.

If the official rate were determined by the market and sank to 14 per dollar at the beginning of a Macri government, it would be a devaluation of about 31 percent from the official rate set by the central bank.

Macri had 46.3 percent of voters’ preferences compared with 40.2 percent for Scioli, according to a nationwide poll of 2,400 people conducted by Management & Fit between Nov. 1 and 5 with a margin of error of 2 percentage points. In other polls, Macri leads by as much as 12 percentage points.

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