Currency Volatility Tracker

Argentine Peso Hits New Low

Image Group
Reuters
Capital is fleeing the currency and equity markets in Argentina. Above, a man walks past the Argentine Central Bank in Buenos Aires.

After a brief recovery, Argentina's currency and capital markets are once again in trouble as investors begin to sour on the country's prospects.

Argentina's currency, the peso, hit an all-time low on Tuesday closing at 22.476 against the U.S. dollar, a decline of 22 percent since the beginning of the year and a 46 percent drop since the beginning of 2017, the last time that the currency actually increased against the dollar.  Also, Argentina's capital market, the Bolsa de Comercio de Buenos Aires, has lost 18.9 percent of its value this year after being red hot last year.

The sudden downturn in Argentina's currency, which began in May of last year when it first reached 16 pesos to the dollar, marks a stunning reversal of fortune for a country that has long had currency valuation problems but seemed to be on the path toward recovery after the election of President Mauricio Macri in December 2015 and more recent hopes that his business-friendly government would succeed with much needed economic reforms.

After 12 years of successive anti-market governments in the form of populists Nestor Kirchner and his wife Cristina, Argentina's currency and it's economic fortunes have been on a downward spiral.  Since 2010, the first year that CreditPulse began tracking currencies, the Argentine peso has lost a staggering 429% of its value.  Only five world currencies have lost more value during the same period: Venezuela, Myanmar (Burma), Syria, Sudan and Belarus.   

Argentina's currency woes eventually hit the capital market as the Bolsa de Comercio de Buenos Aires, or Buenos Aires Stock Exchange, began to decline early this year after reaching a market capitalization of $117.7 billion in December and 2.2 trillion pesos in January.  In 2017, Argentina's stock market was the second best performing in the world with a return of 70.2%, according to the World Federation of Exchanges.

One of the reasons for optimism was the news in May 2017 that several major oil companies led by Royal Dutch Shell and Exxon Mobil Corp were rushing into Argentina to take advantage of an anticipated boom in shale as that country is home to the world's second largest potential resources of shale gas.  BP, Chevron and France's Total are also investing in Argentina.

In addition to business investment, Argentina received a political boost in August when President Macri's Let's Change coalition won big in primary elections beating back a potential challenge from former president Christina Kirchner who was planning a political comback.  The peso received an immediate boost on the electin results, but since then the Argentine central bank has struggled to maintain the peso's value. 

Due to recent history that includes a sovereign default in 2001, Argentina's currency is highly suceptible to political, financial and economic turbulence.  As the nearby graph shows, the peso took its biggest hit in the fourth quarter of 2015 when it decline 40.13% against the dollar during the global decline in commodities.