Oil and crop prices save Milei from surging demand for dollars

Argentina's demand for dollars has skyrocketed, mirroring the volatility seen during a market sell-off last year, despite the unexpected impact of the Iran war. July saw Argentines purchasing US$3.4 billion in US dollars, the highest monthly figure since the previous year's midterm elections, while sales dropped by 13 percent to US$608 million.

The peso has remained remarkably stable, an unusual occurrence for the historically volatile currency. Analysts attribute this stability to higher oil and agricultural prices resulting from the Iran war, which increased export dollars and mitigated strong local demand. Sebastián Menescaldi, a consultant, noted, "The war saved us this year."

The Middle East conflict led to a sharp improvement in the outlook for Argentina's main commodity exports. Factors such as midyear bonuses and tourists visiting the United States, particularly for the World Cup final, contributed to a surge in dollar demand. Including capital market transactions and credit-card spending abroad, total dollar demand reached approximately US$6 billion.

The official exchange rate has also appeared relatively favorable as the peso strengthened against inflation, in part due to government interventions. However, the mismatch between dollar sales and purchases raises concerns about the sustainability of Milei's political model. Despite the strong demand for dollars, Argentina's foreign reserves have increased by US$5.9 billion over the past two months, supported by Central Bank purchases and government debt issuance.

The situation appears less alarming than Argentina's past currency runs might suggest, but the risk lies in a sudden shift in election expectations.