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What’s going on with Dollar vs Argentine peso (USD/ARS)?

What's going on with Dollar vs Argentine peso (USD/ARS)?

In 2023, the Argentine peso (ARS) experienced a historic drop, reaching its lowest-ever exchange rate against the US dollar (USD), reflecting the country’s ongoing economic woes following multiple debt defaults and rocketing inflation. This placed the peso among the world’s poorest-performing currencies.

At the time of writing on October 4, the USD/ARS currency pair sat at a historic level of 350. The pair reached this mark in mid-August after Argentina’s monetary authorities devalued the national currency by nearly 20%. 

Year-to-date, the ARS fell almost 100% against the greenback.

USD/ARS year-to-date chart. Source: TradingView

On October 3, the peso also fell to a fresh low in the parallel trade to 805 per dollar, as the uncertainty ahead of general elections scheduled for this month grows. 

What’s happening with Argentina’s economy and the peso?

The downfall of the Argentinian peso against the dollar and other global currencies began several years ago as a result of the government’s mismanagement.

The South American economy has been bailed out by the International Monetary Fund (IMF) after defaulting on its debt obligations multiple times. 

In August 2023, ARS plummeted to an all-time low of 350 after the Argentinian authorities devalued the currency by 18% and hiked the benchmark interest rate to 118%. The move came after the current government suffered a shock loss in a primary election. 

Argentine assets plunged across the board following libertarian candidate Javier Milei’s better-than-anticipated election performance.

Milei, a former economist, is known for his plan to dollarize the country’s economy and abolish the central bank. This plan would result in the elimination of the peso, and the adoption of the USD as legal tender in a bid to eliminate the nation’s skyrocketing inflation.

Argentina’s general elections are set to be held on October 22, 2023, where the new president, vice president, members of the national congress, and the governors of most provinces will be elected. 

Bank of America expects peso to weaken in 2024

In the wake of the peso’s devaluation, strategists at Bank of America (BofA) offered no words of encouragement regarding Argentina’s domestic currency.

Unless Milei becomes the next president and dollarizes the country’s economy, the worst is yet to come for ARS, experts at BofA said in August. 

Notably, the analysts expect the official exchange rate of USD/ARS to slump to 545 by the end of 2023, followed by another crash to 1,193 by 2024-end. The reason for this prediction is that BofA expects the winner of Argentina’s elections to continue with the devaluation of the peso, starting in December. 

However, the bank’s analysts saw the devaluation as a positive because they believe ARS was previously overvalued, indicating the current government is taking steps to address necessary macroeconomic adjustments.

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