Argentine peso’s vulnerabilities back in the spotlight

A range of factors, including a fall in soybean prices, expectations of central bank intervention and political risk, appears to best explain the recent drop in the Argentine peso against the dollar. Our base case is that the peso continues to fall, albeit in a more orderly fashion, in the coming quarters. But the latest move underscores the peso’s fragility and further sharp falls would raise fresh concerns about the government’s ability to service its large dollar-denominated debts.