Standard Chartered expects Argentine peso to end 2018 stronger

Bloomberg

The Argentine peso has a split personality, with analysts forecasting both big losses in the spot market and the highest total return for emerging-market investors.
The reason for the divergence comes down to inflation and interest rates. Consumer-price increases of more than 20 percent will wreak havoc on the peso’s value, but any weakness will be more than offset by the world’s highest benchmark interest rates — at 28 percent. “The opportunity to earn carry remains unparalleled,” Ilya Gofshteyn, a strategist at Standard Chartered, wrote in a note last week.
The bank is an outlier in expecting that the peso will actually end the year stronger, at 18 per dollar. The median forecast of economists surveyed by Bloomberg is a 7 percent drop in the spot market to 20.2 per dollar by the end of the year, while the carry trade — borrowing dollars and buying pesos — produces positive returns exceeding 14 percent. The peso was little changed at 18.89 per dollar as of 11:21 a.m. in New York, trading near a record low.
While the peso posted the biggest slide against the dollar among 31 major currencies tracked by Bloomberg last year, and is again leading the pack downward in the early days of 2018, some measures show it is still overvalued.
In inflation-adjusted terms against a basket of currencies from major trading partners, the peso actually eked out a slight gain in 2017.
“We’re talking about a currency that is still strong,” said Alejandro Cuadrado, the global head of foreign exchange at Banco Bilbao Vizcaya Argentaria SA in New York, whose forecast for the peso to depreciate in the spot market matches the median estimate.