the market of future dollar It usually has two main roles in the investor’s view of the future: it works as an exchange insurance or as a hedge against a possible greater devaluation and it can also be a thermometer of what the market expects for the evolution of the exchange rate. In recent months, Implicit rates were high due to a strong devaluation expectation, but analysts note some changes in the dynamics behind the launch of the soybean dollar at $200.
As EcoGo economist Lucio Garay Méndez explains to iProfesional, what has been happening for a few weeks is that “The inflow of foreign exchange for the soybean dollar postponed the expectations of abrupt devaluation for 2023 and, today, what what we are seeing is a brief lull along the entire futures curve“.
The same is observed from Ecolatina, which recently published a report, in which they highlighted that the acceleration in the liquidation of foreign exchange from agriculture, which has already exceeded US$5,000 million, contributed to appease expectations of devaluation in the immediate future and made the reserve accumulation target for the third quarter feasible agreed with the International Monetary Fund (IMF).
The Head of Research of that consulting firm, Santiago Manoukian, points out in this regard that “the process of entering dollars through this route has not yet finished and is allowing a strong recomposition of reserves“. Also, added to this positive process of income of dollars from the field, the promise of income from loan funds from the Inter-American Development Bank (IDB), which will be around $700 million this month. “These variables are being reflected in the implicit rates of ROFEX future dollar contracts, which have trended downward in recent times.“, describe Manoukian.
Future dollar: who is going to that market
Grupo Broda’s economist, Elena Alonso, explains that, at the moment, the future dollar is working above all as an exchange rate insurance or as a cover. “It is useful, for example, to the importer who needs coverage because he has to access the MULC in 180 days.”
This is within the framework of the restrictions applied by the BCRA for the financing of imports in the official exchange market, the MULC, and that requires them to seek funds outside of it 180 days until the end of the year.
The future dollar serves as a thermometer for the market, but also as a hedge.
Faced with this reality, which gives them a certain unpredictability about what price the exchange rate will be at when they can finally access the official exchange market, Alonso explains that “one option is to access the future dollar to hedge against the expectation of devaluationbecause it allows them to put a floor and a ceiling for the exchange rate in a sale or purchase operation”.
What happens to the future dollar since the soybean exchange rate arrived
In what market are those who go to dollar futures currently operating? Manoukian explains that, Since the launch of the soybean dollar, a drop in the implicit rates has been observed: it details that there was a fall of 1.6% in those of September 2022, of 3.1% for those of the next month and of 0, 5% for December.
While for those with longer terms, there is a rise: 0.6% for January 2023, 2.3% for February, 4% for March and between 6% and 7.7% for from April to June. “Implied rates on futures contracts for the second quarter of next year, especially, are climbing,” Manoukian reports.
So, deduce that what the market is showing today is, really, a moderation of devaluation expectations favored by the implementation of the soybean dollar at $200, but it warns that a shift in the curve is seen forward.
The evolution of the rate, according to Ecolatina.
And, from the Bullmarket Brokers Research team they point out that this is related to the fact that “the market is seeing an exchange rate delay or a future devaluation, but observes that the Central Bank has firepower in the short-term curve”. This is thanks to the soybean dollar, as indicated.
Consequently, What the BCRA does is intervene in the dollar futures market so that the devaluation exceptions are less and combines it with a strong increase in the monetary policy interest rates. to take pressure off the dollar, which is what it did last week.
It is worth mentioning that seven days ago, as anticipated, the BCRA ordered a rate hike of 550 points and fixed the performance of the traditional fixed term, which is the one made by human beings for up to $10 million, at a Nominal Annual Rate (TNA) of 75%, which is equivalent to an Effective Annual Rate (TEA) of 107%. Similarly, it adjusted the rate applicable to Liquidity Bills (LELIQ), which also went from 69.5% to 75%. The increase was highly anticipated by the market and is in line with the expectations of the City, which anticipated an increase of between 400 and 600 points.
Dollar: does the market believe there will be devaluation?
Manoukian details that “what the market expects is that, Thanks to the latest measures to apply a differential dollar for the agro-export sector, the Government can avoid a devaluation jump for nowcontrary to what was expected a few months ago, but he considers that it will be difficult for him to sustain this over time”.
In the same sense, from BullMarket they point out that “as long as the Government continues to put restrictions on the dollar and create distrust in the market, exceptions and coverage will always continue to increase.”
It refers to the last barriers to access to the dollar that the Government applied for the beneficiaries of energy subsidies and soybeans. Let us remember that this last measure generated much criticism from the sector and resulted in internal within the government as well.
The graph shows the coverage of the curve.
Let us remember that hours after the measure was known, the generalized rejection of the agricultural entities and the Secretary of Agriculture was made public, Jose Bahillo said that the resolution of the Central Bank did not include “the producers who have been accompanying the export increase program with so much effort“. The post was retweeted by the Minister of Economy, Serge Massaand the Central later clarified that the scope of the measure was for exporting companies: “The provisions disclosed are not applicable to human beings,” it specified.
On the other hand, according to Garay Méndez, also At this time, the fact that “the real exchange rate continues to fall behind” plays in the movements of the future dollar., since it anticipates that, at some point, it would have to be corrected, especially considering that “it is very likely that no more soybean dollars will enter in October.” Thus, he anticipates that the futures market will probably overheat again in the coming months.