Foreign exchange market: will investors bet on the carry trade again in August?

According to the latest report from GMA Capital, “Julio said goodbye with the return of the carry trade, the psychological ceiling of the dollar at $ 1,500″. With the “contado con liqui” practically unchanged last month (it barely rose 0.2%), equities and CER instruments took the podium, with returns in dollars that sovereigns, affected by the global context, could not replicate.

For investors looking for coverage, the August scenario continues to enable the window of profits in hard currency from instruments in pesos. From LCG they point out that arbitrage strategy remains profitable: “Dismantling a position in dollars today to buy the instrument in pesos and covering oneself by selling dollar futures continues to leave a positive return in hard currency, between 0.1 and 0.6% of the monthly effective rate (TEM) depending on the term.”

A key piece of information for this month isl change in the shape of the rate curve. In the last days of July, the curve inverted, with the short leg rising sharply towards levels between 0.4% and 0.6%, while the long leg remained stable. This generates a additional incentive for those seeking quick returns in synthetic instruments.

Analysts warn that these returns were supported by a active presence of the Central Bank in the futures market to keep exchange insurance “cheap.” According to LCG data, the seller positioning (short) of the entity led by Santiago Bausili jumped from US$ 492 million in June to approximately “US$ 1,490 million so far in July.”

This intervention seeks to ensure that “the yields of this synthetic, and of others, remain in positive territory”, thus promoting the supply of currency and containing demand. However, analysts warn that this calm comes at a cost: the official priority has shifted to containing the exchange rate, even if that means slowing down the accumulation of reserves.

For this month, the strategy for “carry traders” will be tied to the signals that the Government will offer. In this sense, a report by the consulting firm Qualy highlighted how official communication can alter brokers’ plans. Statements about a potential correction of the exchange rate towards $1,800, the so-called “Ravier Effect”, generated discomfort in the Economy and “led some operators to undo carry trade positions” during July.

Despite this discursive setback, the Government is betting that the anchor for August will be institutional. The recent submission to Congress of the reform of the BCRA’s Organic Charter seeks to “shield its independence” and “prohibit monetary financing of the public sector.”

Analysts agree that this month the attractiveness of the carry trade will remain valid as long as the cost of hedging in futures remains low and the financial program is perceived as consistent by the market. As long as the Central maintains the ceiling of $1,500 with the use of public banks and futures, the pesos will continue to be, for now, the preferred refuge of the City.