LIVE MARKETS-Milei victory opens door to flexible regime for Peso -Goldman

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MILEI VICTORY OPENS DOOR TO FLEXIBLE REGIME FOR PESO -GOLDMAN

President Javier Milei's mid-term election victory has potentially opened the doors for the peso ARS=RASL to trade with a more flexible exchange rate and policymakers may hold a 'bias' for the currency to trade in the upper range of its flotation band, strategists at Goldman Sachs said.

Since April, Argentina's government has withdrawn most of the South American country's currency and capital controls allowing the peso to float freely within a wider trading band of 1,000-1,400 pesos per dollar, which has been cheered by markets and investors.

The peso last closed at 1,408 per dollar, closing in on the upper range of the trading band, after the currency weakened sharply in the run-up to the October election, while the support from the U.S. government and falling inflation levels has further aided the peso.

"We think that the election outcome has opened a window of opportunity for the (Argentine) authorities to allow the currency to float more freely, given US support, still well-anchored inflation expectations, limited FX pass-through and lower potential political costs," Goldman said.

The gap between Argentina's official exchange rate and the much-used black market rate ARSB= has also converged drastically, following the easing of capital controls. The parallel currency last closed at 1,415 per dollar.

"Post-election developments in FX market pricing and recent communication from the Argentine and US authorities suggest to us that policymakers will have a bias to maintain the flotation bands and continue to let the exchange rate trade close to the upper band to keep trading off reserve accumulation, limited inflation pass-through and reduced market volatility," they added

Goldman strategists led by Victor Engel, revised their ARSL= forecasts over the 3, 6 and 12-month horizon to 1,540/1,590/1,690 respectively from their previous forecasts of 1,515/1,560/1,650.

"A more competitive Peso via a more flexible exchange rate would...be an effective re-balancing mechanism given critically low international reserves and a current account deficit," they added.

Post the election victory, Citigroup and Wells Fargo had flagged a challenging path for the peso ahead and said they prefer equities over currency in the region.

(Siddarth S and Kanchana Chakravarty)

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