Wednesday, November 28, 2012

Argentine Pesos versus the USD - Warning a collapse might be coming

Argentina, which defaulted on its bonds in 2002 is again in danger of defaulting on its debt. If the United States Appeals Court agrees with the ruling of Judge Griesa, the nation will most likely be in default again.

Fitch Ratings agency announced yesterday that it has downgraded Argentina's long-term foreign currency Issuer Default Rating from “B” to “CC,” with a negative outlook, as it sees a “probable default” if the country misses its payment to holdout investors. Argentina is in a deepening recession and is grappling with social unrest. Besides the court case, Fitch cited a "tense and polarized political climate" and public dissatisfaction with high inflation, weak infrastructure and currency.

If  Argentina fail to honor the bond owners with installment and interest rates due on 15th of December 2012 it is in default again.

The markets current peso exchange rate puts the peso around 42.3% lower than the official currency rate against the USD.

If the bond default take place, the United States will freeze the Argentine government's dollar accounts, which will push the Argentine Peso exchange rate over the edge versus USD. 

Geir Solem

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