FxWirePro: Argentinian exports likely to rise in Q1’2017 – Bid USD/ARS 2w ATM calls and hedge FX payable exposures via 3m NDFs

For today, the major focus would be the FOMC meeting on Funds rate, where a Fed funds rate likely to hike from 0.50% to 0.75% mark which is broadly projected (and clearly priced in by all markets). Also of interest would be the updated economic forecasts and Fed funds rate projection, with markets currently fully agreeing with the two hikes projected in 2018.

Thus, turbulence is expected but no dramatic moves in FX markets unless any surprises would come from the tone of the statement and Yellen’s press conference.

Well, in order to favor ongoing upswings which seem to be momentary, we advocate vanilla structures in 2w USDARS ATM delta calls.

On the flip side, the bearish stance of USDARS is grounded on prospects for a more extended agricultural exports high season on the back of corn production, together with tax amnesty inflows and the return of Argentina to markets in Q1’17.

Short USDARS, the Argentinean peso underperformed markedly on the month. Yet, we remain constructive ARS in H1’17 and continue to recommend selling 3m and up to 6m USDARS NDF.

Moreover, the central bank stood pat this week, decreasing concerns on political pressures after the authority cut the policy rate 200 bps in November.

Short USDARS 6-month NDF (sell at 16.50). Marked at -3.25%.