Argentina peso (USD/ARS) is in a deep meltdown: is it a buy?

Argentina peso has become worthless as the country’s inflation surges. The USD/ARS exchange rate jumped to a high of 230.54, the highest level on record. It has soared by more than 96% in the past 12 months and 900% in the past five years.

Argentina and IMF talks

Argentina has slowly become one of the biggest failed states in the world. This is notable since the country has a population of more than 45 million and is one of the most endowed countries globally. 

The country has fertile soils that makes it leading agricultural exporter. Argentina’s biggest exports are corn, soybeans, and wheat. It also exports products like delivery trucks to countries like Brazil, China, and the United States.

Despite all this, Argentina’s economy is reeling after several financial crises in the past few decades. It is now going through a major crises, which has seen its currency crash and inflation jump. The most recent data shows that the country’s consumer price index jumped to 108.8% in April. Inflation stood at 40% at the height of the Covid-19 pandemic.

Now, Pakistan is talking with the IMF on a rescue package. Earlier this month, the American government said that it would support the country’s $44 billion program if the country can negotiate a new schedule of payments. If the program works, Argentina will receive $10.6 billion between July and December this year. 

The IMF deal will likely provide some short-term reprieve for the collapsing Argentina peso. However, in the long term, I suspect that the USD/ARS will continue surging since Argentina has had more than 20 bailouts in the past few years.

USD/ARS technical analysis

The weekly chart shows that the USD to ARS exchange rate has been in a strong bullish trend for years. A keen look reveals that the pair has risen in all weeks since May 18, 2020. As a result, it has jumped from less than 20 in 2017 to almost 240. 

The shares have jumped above all moving averages while the Relative Strength Index (RSI) has moved above the overbought level. Therefore, the USD/ARS pair will likely continue rising as buyers target the next key resistance level at 250.