The 5 reasons why the dollar continues to rise

Here is a brief overview of all the factors that push the dollar upward in Argentina:

Political uncertainty

The proximity of the elections and the uncertainty about the future in terms of the economy led for several weeks to greater dollarization of the portfolios in search of coverage in the event of risk of devaluation. The fear of a sharp rise in the exchange rate beats the very high interest rates proposed by the Central Bank (the highest in the world) to contain demand in dollars. Uncertainty also reduces the attractiveness of porting foreign investors who, for nearly four years, have led billions of dollars to speculate on the financial cycle and benefit from the highest dollar returns in the world.

Commercial war between the states and China

In its attempt to balance the trade deficit with China, US President Donald Trump raised tariffs last week for thousands of Asian giant products. China reacted Monday with the largest devaluation of the yuan for years to neutralize the effect of rising tariffs and thus maintain the attractiveness of products sold in the United States.

The devaluation of the yuan increases in dollars the products imported by China and this country is only the second largest trading partner of Argentina, behind Brazil. To maintain the competitiveness of its products and not lose market, Argentina (as well as the rest of the emerging countries) is obliged to devalue in turn.

Exchange with China

The Central Bank of the Argentine Republic has 130 billion yuan in its reserves. The first 70 billion were approved in 2017, during the second government of Cristina Kirchner, a decision that was strongly criticized at the time for macrismo. However, with Mauricio Macri at Casa Rosada, last December, the head of the monetary authority, Guido Sandleris, extended the exchange of 60 billion yuan.

With the devaluation of the Chinese currency, these funds, measured in dollars, have fallen so that the Central Bank today has fewer reserves than last week to cope with possible rushes.

Risk aversion

As with local political uncertainty, the trade war between the US and China is generating greater risk aversion and foreign investment funds are pulling out of riskier areas such as emerging countries to safer areas, even at the cost of lower yields. Thus, investors are looking to get rid of the badets of emerging companies and are selling, like their currencies, looking for a strong currency hiding place.

EDF lower than expected

Last week, the Fed lowered its interest rate (-0.25%) less than expected by the markets, while anticipating that it could delay further rate cuts over the next few years. next few months. A lower rate would have made the emerging market places more attractive to investors and benefited from the arrival of investments in search of increased profitability. This will not happen in the short term.