Recently, the dollar reported what is technically referred to as a leap of significant appreciation. This occurrence can typically be attributed to two primary causes: either there is a sudden change of expectations by the public, or there is a last-minute change in economic policies . For example, expectations regarding the dollar shifted dramatically in August 2019 when it surged from 45 to 63 pesos after Mauricio Macri’s administration faced a political setback. Conversely, in August 2023, a 22% leap occurred in a single day when Sergio Massa negotiated a new value for the official dollar with the IMF.
Throughout July, the behavior of the dollar was progressively bullish . Nonetheless, a strong and consistent intervention by the monetary authority in the futures market was evident. This aimed to prevent the dollar’s value from surmounting the psychological barrier of 1,300 pesos . The futures market was effective for nearly the entire month, showing lower values than cash values. For instance, futures were trading at $1,280 compared to a cash value of $1,290.
So why was the $1,300 psychological barrier broken?
July’s futures beat the 31st of the same month, which indicated that profits or losses were determined based on the dollar’s closing value on that specific date. It was anticipated that the monetary authority would continue to intervene on the last two days of July, which would achieve two objectives: prevent the dollar from exceeding $1,300 while avoiding significant losses in the positions held in July’s futures.
However, this intervention did not occur. The Central Bank of Argentina (BCRA) showed no activity in the futures market on July 30 and 31, causing the dollar’s value to surge from $1,280 to $1,360 within just 24 hours.
Was this rush in value a result of a change in public expectations or a modification in exchange policy?
The dynamics of public expectations remained constant , fueled by seasonal factors like the pause in agricultural settlements, and political uncertainty surrounding the elections. Nevertheless, the exchange policy underwent a radical modification at the end of July. The absence of intervention on the month’s last two days led to an escalated dollar price, and that lack of intervention appears to clarify the peso’s sudden depreciation and the breaking of the $1,300 ceiling.
So what could explain the BCRA’s withdrawal from intervention?
Although there hasn’t been official confirmation, observing specific events provides insight into possible explanations. On July 30 and 31 , the BCRA reduced its intervention in the futures market significantly. During this timeframe, Argentina was undergoing a thorough review of its goals with the IMF, focusing on meeting the objective of accumulating reserves . Approval from the IMF Board occurred on July 31 . Prior to this date, the fund had issued a report highlighting that the Central Bank of Argentina was maintaining a sold position of $5,000 million in futures , which was not accounted for in the agreement made with the agency.
If this situation holds true, it would not be the first occasion the IMF conditions its discretion based on the exchange policy in Argentina. Therefore, if such a hypothesis is validated, it would be reasonable to foresee reduced intervention in the futures market within the established exchange bands. This reduction would lead to an increase in uncertainty within the non-intervention zone , thus promoting a higher level of volatility in currency behavior .
The author is a founding partner of Gardel Trading.