Cash Dollar with Liquid: is it cheap or expensive?

Let’s look at the cash dollar chart with liquidation:

Dollar Counted with Liquid Graphic.jpg

This week, in nominal terms, the dollar hit record highs. If one considers the $190 that touched in October 2020 and adjusts them for inflation, the value in real terms would be $323.

Why was there such a rise in recent days? Mainly due to the disarmament that occurred in the CER bonds, which are adjusted for inflation. When such distrust was generated and there were rumors of inability to pay, the dollar officiated as a refuge against investors.

But it’s not just internal factors that played a role. The international context does not help. The Federal Reserve raised the rate by 75 basis points, the highest figure since 1994. This generated a global appreciation of the dollar and, consequently, a devaluation in emerging economies.

Cash Dollar with Liquidation: Is it cheap or expensive?

If one were to analyze the monetary base in relation to the Cash with Settlement dollar, the conclusion would be that the dollar lagged behind.

The initial tranquility of the dollar in 2022 was due to issues related to the agreement with the IMF, the liquidations of the field favored by international prices and the opportunity of the Carry Trade, taking advantage of the rates in pesos and then returning to the dollar.

It is worth clarifying that the Carry Trade is an investment that works until it stops working very abruptly, as we have seen in recent days. Why? Simply because the dollar rose, in a few days, what is generated in profit in several months with the rate in pesos.

But the calm of the dollar is over. It is not trivial that an investment “safe and quiet” as the CER bonds have had such a drop. And this phenomenon is reflected on all fronts: the exchange rate gap rose again, dollar bonds are at historic lows and inflation continues unabated.

Argentina is still involved in the same problems as always: high fiscal deficit, low confidence, protectionist measures and patch after patch.

In addition, this week the monthly inflation data for May came out: 5.1%. In this way, the annualized of the last 12 months totaled a 60.7%, a record since 1992. Health services and transportation were the ones that increased the most, followed by food. Obviously, these rises hit the middle and lower classes the hardest.

Now it seems that there is a new enemy to blame for inflation: the war between Russia and Ukraine. I will not deny that the conflict puts upward pressure on energy and food. That is a reality. But it should be noted that all Latin American countries (not to compare with European ones) have considerably low inflation, except for Venezuela and Argentina. Curious, right?

For its part, the country risk exceeded 2,100 points, setting a new record since the debt was restructured in 2020.

In this context, the BCRA decided to raise the reference interest rate to 52% per year, the sixth increase so far this year. What is the OBJETIVE? Tackle inflation and avoid dollarization. Will it be effective? It probably has some short-term effect. But if the real problems are not resolved, the situation will worsen dramatically in the next 12 months.

In Argentina, the dollar has no other destiny than to continue to rise. Inflation does not take a break and politicians believe (or pretend to believe) in measures that do not solve the root problems. That’s how it goes.

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