The five keys that help explain why the dollar was ironed early in the summer – 01/12/2019

The beginning of the exchange scenario in 2019 is very different from the one that ended in 2018. It seems relatively relaxed and to the point that the price of the dollar punctured the floor of the non-intervention zone of the central bank. Tomorrow, the lower band will start at $ 37.45. Friday closed at $ 37.08 (the wholesale level is taken). In another order, the bonds showed a recovery which allowed a compression of the country risk of almost 130 basis points (829 to 703) peaks at the end of December.

Economists see reasons for the dollar's price to remain around the no-intervention zone. At least for the next few months. Here are some of the reasons for the current scenario.

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Improve expectations for change

In December, two Di Tella University surveys revealed favorable data for Cambiemos. One of them recorded an increase in the overall badessment of the government. From a minimum of 21.8% in October of last year, it increased by one point in November. And in December, he gained nine points. The other result of the UTDT is visible in the elements of the consumer confidence index. "Do you believe that in 12 months the situation of the economy will be …?", Is the question. 45% think so. In November, this proportion was 38% and in October 36%. According to the results of an Elypsis survey conducted during the last week of December, the positive image of the president has improved nationwide. As of December 30, Macri's figure was 32%, up 2 points from the previous week.

Rates in USA in pause mode

During the week, the minutes of the last meeting of the Federal Reserve -The Central Bank of the USA-. At this December meeting, the entity decided to raise interest rates. The minutes revealed that many bank managers have made it clear that there is reason to believe that the slowdown in the US economy will ease inflationary pressures, namely lower growth in emerging markets, financial volatility , the trade war with China and Canada. reduction of fiscal and monetary stimuli. Rate hikes expected this year could be postponed. Fed Chairman Jeremy Powell said at a luncheon at the Economic Club in Washington this week that he would not be in a hurry. If the US does not raise rates at the same rate as in 2018 – last year, it has done it four times and there are already eight since the end of 2015 – capital will be less incentivized to be invested in Treasury badets and will benefit emerging economies and, possibly, Argentina. Trump was against the monetary policy stance of the reserve and continue to raise rates. This makes the cost of deficit financing and its demand expansion plans more expensive.

There will be dollars

According to a calculation from the consulting firm Quantum Finanzas, the Treasury will arrive at the end of the year with a cash surplus of $ 1,100 million. But before this surplus of dollars, the government will have obtained the necessary funds to pay for the services and repay the debt. It will obtain funds in the amount of 37,841 million US dollars, including: 22,741 million USD will be provided by the Monetary Fund through disbursements under the agreement to be listening half of which will arrive at the end of March. "This shows a manageable challenge," is Quantum's verdict on meeting the 2019-2020 financial obligations.

The Bolsonaro effect

"The appreciation of the real has contributed to the improvement of the exchange rate with Argentina"says Juan Carlos Barboza, an economist at Banco Itaú, in Buenos Aires offices. "However, in terms of trade, this pushes Brazil's growth more than the peso-real relationship." Argentina exports about 20% of its goods and services to Brazil, but three-quarters of this proportion are vehicles. This means that bilateral industrial exchanges are less sensitive to changes in the value of currencies than to Brazilian demand. Brazil's GDP this year would increase by 2.5% according to Banco Itaú's estimates.

Barboza sees a favorable expectation on the Brazilian economy ", especially a greater demand for its badets"And that's what makes the real appreciate." The bilateral real exchange rate measured by the BCRA has improved for Argentina so far in January compared with December, mainly because On Friday, the dollar closed at R $ 3.77 In terms of bonds, the demand for Brazilian securities also increased.The performance of Brazilian Treasury shares at 10 years rose from 12 % in September to 9.2% Friday. The Bovespa index has crossed the 90,000 mark.

Recession and rising rates

At the Central Bank, admit that high rates discourage activity, even though the fall in GDP preceded the implementation of the current plan. They recognize that importers and individuals have stepped off the accelerator when it comes to demanding foreign exchange. The reversal of the recession on consumption – about 70% of GDP – does not seem to be imminent. Federico Furiase of Eco Go has estimated that for an inflation "close to the area of ​​30% per annum in December this year," the price of the dollar "was launched.I should not move more than 20% to 25% . "That would give $ 47.5. The salary would still lose against inflation. "The need to achieve a controlled evolution of the exchange rate requires compliance with the monetary program which in turn limits margin to accelerate rate cuts and increase credit"Private consumption would fall this year by 2% according to EcoGo.

This week, the Central Bank released data on loan developments. The December monetary report confirms the trend: "All registered lines of credit are down, even those intended to finance the consumption of families, which contributed positively or neutrally to the growth of total loans in pesos, indicates the work of the BCRA, credit card financing has decreased by 12.7% in real terms during the year. This comes against a backdrop of declining sales in shopping centers, which, according to the latest available data, posted a real 18.7% year-on-year decline in October. On the other hand, personal loans have recorded an annual decline of 18% in real terms ".