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The Argentine peso has moved into the abyss as concerns about the country continues. The USD/ARS exchange rate is sitting at the record high of near 260, meaning it has jumped by over 43% in 2023 and by over 850% in the past five years. The GBP/ARS has soared to 325 while the EUR/ARS jumped to 275. Further, the BRL to ARS exchange rate has spiked to 53.35.
USD/ARS, GBP/ARS, EUR/ARS, BRL/ARS five-year performance
Argentina’s economic crisis escalates
The Argentine peso has been one of the worst-performing currencies in 2023. It has diverged from other emerging market currencies like the Mexican peso and the Brazilian real, which have held steady this year.
The collapse of the Argentine peso has had major implications for the economy. The middle class has evaporated while demand for foreign currency like the US dollar and the British pound has jumped in the past few months.
Meanwhile, the Argentine inflation has soared. The most recent data showed that the headline consumer inflation jumped to 114% in May and analysts believe that it could rise to over 150% this year. This means that the purchasing power, even for the wealthy, has dropped sharply.
Other industries are also being affected. Manufacturers, who rely on imported raw materials, are having to pay more for their goods. At the same time, agricultural production has slipped sharply in the past few months.
Argentina has also started importing key agricultural commodities, which is ironic since it is one of the biggest producers in the world. These imports are meant to help stabilize prices in the country.
Can the Argentine peso be saved?
The Argentine peso faces a dim outlook ahead as concerns about the economy continues. Demand for the currency will likely remain weak in the foreseeable future. I believe that many people in Argentina will continue moving to foreign currency after seeing their wealth evaporate.
Further, Argentina is facing an election in October this year. In most periods, currencies of emerging market currencies tend to weaken towards an election. The view is that an election brings some internal uncertainties that investors seek to avoid.
Adding to the challenge is that the Argentine central bank has hiked rates to above 100% recently. Higher interest rates lead to a weaker economy since it drains the liquidity.
Therefore, I believe that the USD/ARS pair will continue rising in the coming months as demand for the Argentine peso evaporates. This uptrend could see it jump to 300.
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