USD/ARS: 2 reasons the Argentine peso plunge could take a breather

The Argentine peso has been in a freefall in the past few years as concerns about the troubled economy continued. The USD/ARS exchange rate surged to a record high of 270, meaning the peso has become almost worthless. Indeed, the black market exchange rate has moved to almost 500.

USD/ARS chart by TradingView

Argentina’s IMF deal

The Argentine peso could have some relief in the coming days for two main reasons. First, the country is in talks with the International Monetary Fund (IMF) on a rescue package. On Sunday, the IMF said that a revised agreement will happen in the coming days. 

The IMF is conducting a review of a $44 billion financing with Argentina. These funds will provide the country with a lifeline at a time when it is going through a rough patch. For one, the country has faced one of its worst droughts in years that has caused over $20 billion in exports.

The drought has pushed the Argentine government to turn to agricultural imports, a rare move since it is one of the world’s biggest bread baskets in the world.

Therefore, a deal with the IMF will provide some unease relief to the tumbling Argentine peso. The main challenge is that Argentina needs to source about $2.6 billion before the end of this month for a payment to the IMF. It is unclear how it will source the funds.

Argentina energy bonanza

Another important news that could support the Argentine peso is the energy sector. Argentina is set to have an energy bonanza after a new pipeline was completed. The country is set to benefit from a new gas pipeline from Patagonia, the second-biggest shale gas reserve in the world.

The pipeline will help Argentina become a net energy exporter for the first time in 13 years. Its government hopes that the energy surplus will hit over $18 billion by 2030. In the immediate period, the pipeline will help the government reduce the amount of money it spends on imports. The government expects to save $1.7 billion this year and $4 billion in 2024.

Still, the challenge for Argentina is that the prices of natural gas have fallen sharply in the past few months. Additional production from Argentina could push prices lower for longer. Also, the ongoing currency controls could hinder investments in Argentina. 

Some of the other planned investments are the Nestor Kirchner pipeline to San Jeronimo and to reverse the flow of its northern Argentina. The latter pipeline was built to bring natural gas from Bolivia.

I suspect that the USD/ARS pair will have a brief pullback if Argentina reaches a deal with the IMF. We saw a similar move with the Pakistani rupee when the country reached a deal with the IMF.