Black-Market Dollars at 136% Mark-Up Show True Pain of the Pegs
Comment of the Day

February 15 2016

Commentary by Eoin Treacy

Black-Market Dollars at 136% Mark-Up Show True Pain of the Pegs

This article by Maria Levitov for Bloomberg may be of interest to subscribers. Here is a section:

In Argentina’s case, the move to a free float in December eliminated the 4.2-peso gap between the official and black market rates. In the months prior to the move, it cost as much as 50 percent more to buy the currency on the street than at the central bank rate.

That premium is similar to what currency vendors in Nigeria’s capital Abuja are charging for dollars now, while hawkers in Tashkent are demanding more than double to convert the Uzbekistani soum. The cost to buy the U.S. currency in unregulated trading in Egypt keeps rising even after the central bank devalued the pound three times last year.

The street rate “is a better reflection of where a market- based rate should be," said Simon Quijano-Evans, the chief emerging-markets strategist at Commerzbank AG in London. It shows “how domestic participants and individuals really feel about their currencies,” he said.

Eoin Treacy's view

The Nigerian Naira has unwound its oversold condition relative to the trend mean following the last devaluation in early 2015. The black market for the Naira suggests the relative strength of the stock market may be pricing in an impending devaluation rather than any particular strength in the underlying shares. With oil prices as low as they are, the pressure coming to bear on producers, that have not maintained control of their budgets, suggests we have not seen the end of devaluations. 

The Argentine Peso has not yet stopped declining following its move to a free float. Meanwhile the US listed Global X MSCI Argentina ETF continues to firm from the lower side of a developing four-year base. 


Indonesia stepped in to support the Rupiah following its downward acceleration last year and it has been among the firmest currencies in Asia since. The iShares MSCI Indonesia ETF found support above its October low in January and pushed back above the 200-day MA last week. A sustained move below $17.50 would be required to question recovery potential.


The above charts help to illustrate the point markets tend to recover following devaluations but underperform before. 

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