Dollar threatens to keep on falling but more buyers strangely come up

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Nerves are still on edge in markets. This shouldn't come as a surprise. No signal was given to calm savers down other than taking farm conflict to Congress and out of the roads. What's more, foreign context have got complicated with New York stocks reaching minimum annual values. Savers are buying dollars in banks and exchange agencies at a daily 60-million pace. Although it is true that this figure settled at 90 millions two weeks ago, it is also true that currency exchange is still moving at high speed. Information coming from government says that the American currency has no floor and could plummet to ARG$2.90. This attempt to punish farm and speculators with a lower exchange rate is not succeeding. More than a punishment, it is perceived as an opportunity, almost a prize, to buy dollars at ARG$3.05 (Friday close at exchange agencies). After farm conflict, things won't be the same neither in political nor economic contexts. Trade surplus is falling, tax savings are following the same path, and it looks as if economic activity will only grow 3 per cent in 2009. Today, tax collection data, which broke records in the past, only reflect consumer price rise. Thus, dollars have already become a precious item despite short term comings and goings.

Fever went down a few points but savers are still practicing preventive medicine, placing themselves under dollar protection, maybe encouraged by foreign exchange stability set by Argentine Central Bank in its crusade to punish those who speculated in dollar futures market and by more negative interest rates. The truth is that daily purchase flow is still high, around 60 million dollars.

Even though the figure has reduced, compared to the 100 million dollars that were bought both in bank branches and exchange agencies when everybody got the jitters, currency purchase orders are still coming. Market estimates aim at weekly sales close to 300 million dollars.

Confusion caused by farm conflict still unsolved after 3 months, domestic activity's sharp slowdown, and bad foreign mood, does nothing but scare away small and medium savers running away from time deposits and other placements to take refuge in dollar bills. This whole cocktail is reflected on country-risk premium increasing rise (on Friday it exceeded 614 basis points, leading the region over Venezuela and Ecuador), which makes public and private financing more expensive. Besides, Argentine default insurance cost (negotiated as «credit default swap») also exceeded that of Venezuela and Ecuador, as it climbed to 6.6-per cent levels (Brazil pays 1.15 per cent). Argentina's neighbouring country governed by Lula Da Silva already shows around 200 billion-dollar record reserve at Brazilian Central Bank (Argentina's central bank president has around 48 billions).

Prices paid for dollar bills in retail market settled at ARG$3.02 and ARG$3.05 while in the informal market sale hit ARG$3.08. Savers getting rid of their Argentine pesos or financial placements are not seduced by higher nominal interest rates reaching 17-per cent annual levels. Despite official indexes, economic agents operate with an annual inflationary expectation not lower than 25 or 30 per cent, so that yields offered at the financial market are too negative to take the risk of being caught in a political crisis scenario.

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