USDARS: The Curious Case Of The Argentine Peso
The Argentine Peso has lost 71% of its value against the US Dollar in the past two years. At the end of September 2019, the US Dollar / Argentine Peso (USDARS) closed at a trading price of 57.54. As we close in on the back of September 2021, the official exchange rate is now approximately 98.5 Argentine Peso per USD.
Several factors have contributed to the Peso devaluation. Argentina’s inflation rate is no doubt the primary factor. As of August 2021, consumer prices in the country have jumped 51.4% on a yearly basis. In comparison, the USD has inflated 51.6% over the past twenty years (representing a 2.11% average annual inflation rate).
Tracking The USDARS Weekly Movements
The tight, almost indecision-less rise of the weekly candles are a suspicious feature of the USDARS chart. It suggests that maybe unnatural market forces are controlling the ARS’s depreciation. It just so happens, the Central Bank of Argentina, The Banco Central de la República Argentina does manipulate the value of the ARS, directly buying and selling Peso’s on the open market to help stabilise the national currency.
The Argentinian Government also has a hand in protecting the value of the ARS. For instance, it is illegal for exporters to conduct transactions in a currency other than the ARS. Similarly, reminiscent of 1970’s style foreign exchange, special permission must be sought to sell pesos for foreign currency by individuals and firms in the country.
What Is The True Value Of The ARS?
To figure this out, we can consult the black market value of the Argentine Peso, the unofficial value that is beyond the control of the Banco Central de la República Argentina. As of September 2021, one USD is traded for ~190 ARS on the black market, representing a true value that is ~52% weaker than the official exchange rate. Effectively, the Argentines peso’s true market-value is half that of the official rate.
Investigating The June 2021 Anomaly In The USDARS
A peculiar anomaly appears in the USDARS chart. It stands in stark contrast to the indecision-less candles of the many weeks before and after. A better view of this anomaly is seen in the daily charts as this anomaly occurred on one day.
On June 30, 2021, A flash crash in the USDARS saw the pair briefly trade at a low of 91.73, equalling a -4% drop from the open price of the USD. However, the pair eventually settled 0.21% higher by the end of the trading day. The Argentine Peso was only granted a short spell of good fortune.
The crash in the USDARS happened around the time of two pivotal economic events for the ARS. The first is the agreement the Argentine Government reached with the Paris Club to defer repayment of US $2 billion debt until March 2022. The deferment shored up Argentina to tackle a US $45 billion debt with a larger creditor, the IMF. The second major economic event concerning Argentina is the ending of a self-imposed full-ban on beef exports, which happens to be the country’s most significant export. While a partial ban continues, the Government relaxed restrictions to China and Israel, close to the time of the crash, to maintain an amicable trade relationship with two of its largest beef buyers.
Please note, BlackBull Markets does not offer the Argentine Peso as a tradable instrument. As indicated in the article, the currency’s ‘official’ exchange rate is controlled by the Banco Central de la República Argentina. Thus, the Argentine Peso is too high a risk of a tradable instrument. A South American currency that BlackBull Markets does offer as a tradable instrument, is the Mexican Peso.
Inflation data from outside the US should pique traders interest this week. Several major economies will be reporting on actual inflation figures experienced during September 2021. Will they match their forecasted values, or will the data follow US inflation and surprisingly creep upward?
This year, a word that has entered the vocabulary of many investors is SPAC, short for Special Purpose Acquisition Company. Yet, for some, what a SPAC exactly is and for what it is suitable, remains a mystery. Since emerging in the 1990s, SPACs have primarily remained a fringe financial product. That is, until last year when their popularity exploded in the US. In 2020, SPACs raised more than US $82 billion. Not to be outdone, 2021 eclipsed this value by April and has since gone on to raise more than US $120 billion. In contrast, SPACs raised a comparatively tiny US $13.6 billion in 2019.
As a trader, it’s a general rule of thumb that we should always be looking to maximise potential returns (per unit of risk) with each transaction. We should always be looking to squeeze as much out of the market as we can. There are times when this can occur by simply letting the trade run its course. However, sometimes market conditions align perfectly for savvy traders to “press the trade” or “pyramid” into the trade.
Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921).
We are also registered with the Financial Services Provider Register (number: FSP403326).
Black Bull Group UK Limited is registered in United Kingdom, Company Number – 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number – 9556804) Address – 483 Green Lanes, London, Greater London, United Kingdom, N13 485
Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.
All payments related to the Paysafe Group are facilitated by Black Bull Group Limited.
Copyright © 2021 Black Bull Group Limited. All Rights Reserved.