Investors are preparing for another jump in the official dollar: the only question is when it will happen

Sales of more than USD 80 million from the Central Bank failed to appease dollarization demand
Sales of more than USD 80 million from the Central Bank failed to appease dollarization demand

The new rise in financial dollars stretched the exchange gap to levels not seen since the pandemic. The cash with settlement closed above $900 for the first time and in this way the distance with the official exchange rate exceeded 150%. Not even the strong sales of more than USD 80 million from the Central Bank were enough to put a stop to financial dollars.

Reviewing recent history, this is a strong sign of what is coming in the near future: a strong devaluation of the official exchange rate, which will surely be substantially higher than the 22% jump last August.

The dollar futures traded on the Rofex clearly reflect these expectations. The contract for the end of the year rose again yesterday and is already at $712. This is a jump of more than 100% compared to the current values ​​of the wholesale exchange rate, which Sergio Massa fixed at $350 after adjusting it the day after the PASO.

This does not necessarily mean that the exchange rate adjustment will be 100% in the coming months, but it does reflect what it costs today to hedge against a possible jump in the exchange rate in the next three months. Another option that is circulating is that of exchange rate splitting, suggested for example by Carlos Melconian. It consists of freeing the exchange rate for certain financial operations, but keeping it under control for a few months of the next government for the import of basic supplies.

Last week, the real exchange rate index released daily by the Central Bank showed that the exchange rate jump defined by Massa in August had been buried by inflation in less than two months. As the official dollar will remain frozen at least until the elections, there are several more weeks ahead in which the exchange rate delay will deepen.

The question they are trying to reveal in the market is not if there will be a strong devaluation, but rather when it will happen. The answers are much more political than economic speculation.

In the event that Sergio Massa reaches the runoff, it is most likely that he will postpone any definition regarding the exchange rate adjustment for at least a month. The Ministry of Economy assures that the intention is to return to a “crawling peg” scheme to avoid losing track of inflation, but that this would only happen at some point in November. However, the most logical thing for the presidential candidate is to leave everything as frozen as possible at least until the day after that definition, which will only arrive on November 23.

Dollar futures on the Rofex do not stop rising and by the end of December they are already trading above $710, that is, more than double the current value of the official exchange rate. Although a new devaluation seems inevitable, there is also speculation about an exchange rate split that will alleviate the impact on food prices.

On the other hand, if the Minister of Economy and presidential candidate does not make it to the runoff, either because he comes third or because there is another winner in the first round, in that case events could be precipitated. In this scenario, it is most likely that the exchange rate adjustment will occur between the end of October and the first days of November.

Although all candidates consider that devaluing is not the way out, in reality investors consider that an exchange rate honesty is inevitable, especially taking into account the sharp increase in the gap in the last two weeks.

Fears about the effects of a strong exchange rate jump are justified if we look at what happened in August. The post-PASO devaluation generated a jump in inflation of the same magnitude in less than two months.

Therefore, it is reasonable to think that the upcoming adjustment will cause a substantial inflationary impact. In fact, there are already consulting companies like Econview that estimate that the December and January indices could be around 20% and that by the middle of next year interannual inflation will be close to 300%.

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