Argentine markets breathe sigh of relief as peso allowed to dip

Argentina’s government let the peso weaken Thursday for the first time this week, easing strains on the local market that had sent yields surging as it aggressively bought the currency to prevent it from tumbling.

The peso opened down 2.7 percent at 1,469 per dollar, before paring the losses, breaking from the previous few days when dollar sales by the government kept it largely flat. It was down about 0.8 percent as of 1pm in Buenos Aires.

Sovereign dollar bonds, meanwhile, rose more than two cents on the dollar as local media reported Economy Minister Luis Caputo finalised the terms of the US aid deal with US Treasury Secretary Scott Bessent. The notes due in 2035, which have swung wildly in the past month on speculation over US help, were up 2.8 cents to 59 cents on the dollar.

“This price action underscores the ‘hair-trigger’ nature of current sentiment,” Walter Stoeppelwerth, CIO at Grit Capital Group, wrote in a report to customers. “Investors are torn between panic over dwindling reserves and cautious optimism that external support may be imminent.”

The Argentina Treasury and Central Bank had been selling dollars – and buying the peso —– to defend the currency. The Central Bank burned through US$1.1 billion of its reserves last month, while the Treasury sold an estimated US$1.8 billion in the last seven sessions.

The Central Bank can only step back into the market if the peso breaches the trading band set as part of Argentina’s deal with the International Monetary Fund. 

The outlook for Argentina deteriorated after President Javier Milei suffered a heavy setback in a local vote in Buenos Aires Province in early September amid growing economic woes and as corruption scandals tarnish some of his closest allies. A pledge of aid from the US helped halt the sell-off, but not reverse the slump. IMF Managing Director Kristalina Georgieva told Reuters on Wednesday she expects a decision soon on fresh assistance.

Short-term interest rates fell Thursday. The yield on Lecap notes due November 28 slid to 87 percent from 89 percent the day before, according to Bloomberg calculations. Bloomberg uses the real annual rate, while the local market focuses on the nominal rate. Using the locally favoured methodology, the yield fell to as low as 62 percent Thursday, according to two people who asked not to be named.