Argentinian Peso Turns Bearish Affecting Emerging Markets After Unexpected Presidential Election Primary
The Argentinian Peso kicked off this week’s trading session with a sharp decline following the release of primary presidential elections results. Wherein a wide margin defeated president Mauricio Macri.
The results indicated that President Macri performed poorly during the primary elections, thus indicating a diminished likelihood of him being re-elected in the upcoming presidential elections in October. Consequently, Argentina’s stock market kicked off the week on a bearish tone with a 30% decline on Monday. This was the largest decline that the Argentine stock market has experienced since 1950.
The results of the primary elections have had a massive impact on the value of the Argentinian Peso, which has experienced a lot of volatility over the past two days. The chart above indicates the performance of the Argentinian Peso against the U.S dollar. The USD/ARS currency pair traded as low as 52.5566 on Monday.
The currency pair peaked at 58.7530 as the Argentinian Peso lost value against the dollar. The exchange rate has since then cooled off as the Argentine currency recovers some of the losses. The currency pair trade at 55.2500.
Center-left opposition leader Alberto Fernandez garnered 47.7% of the votes while Macri secured 32.1%. The results of these primaries have been used to predict the outcome of the upcoming October elections. They suggest that Argentinians are ready to reject the economic policies of President Macri’s administration.
Why the prospects of a regime change resulted in the Argentinian Peso’s decline
Rising political temperatures always tend to hurt the economic performance of the country involved. However, the impact is usually harder in a situation where the leadership changes because a new government is bound to change up economic policies and focus and economic priorities.
This change-up is usually not good for investors because they are forced to change their strategies to adapt to the new economic changes.
In Argentina’s case, President Macri’s government promised to focus on reducing inflation, but unfortunately, inflation has grown as the Argentinian Peso grew weaker. If Fernandez becomes the next president, that creates uncertainty among traders, especially with regards to how his government will perm.
Argentina currently needs a win as far as economic performance is concerned. The country secured a $57billion loan from the International Monetary Fund, and the goal of securing that loan was to try and fix the country’s financial situation. Fernandez promised that he will try to renegotiate the deal with the IMF once he becomes the country’s president.
The Argentinian Peso has also influenced the performance of emerging markets
The performance of the Argentinian Peso, as well as the shock of the primary election outcome, affected emerging markets. It contributed to the slew of unfavorable market news that has prevailed in the global market, thus making emerging markets more vulnerable.
For example, the Brazilian Real grew weaker against the US dollar by 1.3%. The US dollar also grew stronger against the Turkish Lira by 1.2%. Some of the other currencies that grew weaker against the US dollar include the South African Rand and the Russian Ruble.