Argentina's Peso ended a tumultuous week on Friday having shed 20% in its value against the dollar as Fitch cut the South American country's long-term debt by two notches, citing increased uncertainty and a rising risk of default.
The peso gained 2.75% to trade at 58.12 to the dollar on Friday, after several days of freefall were halted Thursday following a joint appeal for calm by President Mauricio Macri and his center-left rival Alberto Fernandez.
But the outlook remains uncertain after markets went into turmoil following Macri's crushing defeat by the populist Fernandez in nationwide primary polls on Sunday.
The Argentine peso has stabilized over the past few trading days but the collapse earlier this week has made a sovereign debt default highly likely, said analysts Capital Economics in a note.
Ratings agency Fitch downgraded the crisis-hit government's debt rating to CCC from B.
The downgrade of Argentina's ratings reflects elevated policy uncertainty following the Aug 11 primary elections, a severe tightening of financing conditions and an expected deterioration in the macroeconomic environment that increase the likelihood of a sovereign default or restructuring of some kind, Fitch said in its announcement.
Fitch said the center-right's crushing political defeat in the primaries increases risks of a break from the policy strategy of the current administration of Mauricio Macri guided by a program with the IMF.
Fernandez, now the clear favorite to unseat Macri in October's presidential election, has questioned the reform program backed by a US$56 billion rescue package from the International Monetary Fund.
The country is currently in a recession and posted 22% inflation for the first half of the year - one of the highest rates in the world - but the IMF said Macri's reform program was beginning to yield results.
Macri reacted on Wednesday by announcing salary hikes and tax cuts in a bid to win back voters with the Oct 27 presidential election looming. Macri said the measures would benefit 17 million workers and their families and all small and medium-sized businesses, formal and informal, state and private.
He also announced an unspecified increase in the monthly minimum wage - currently 12,500 pesos, or US$208 - saying it would benefit two million workers.
In Buenos Aires, the sudden crisis left many businesses reeling.
US retailer Walmart, which has 92 branches in Argentina, said it had seen a 15-20 per cent hike in sales volumes between Monday and Wednesday and had not yet increased prices.
It happens to us when there is a foreign exchange movement and people want to beat any price shift, especially with essentials like oil, sugar, flour, yerba mate and some dairy products, Walmart official Juan Pablo Quiroga said.
Quiroga said some suppliers had notified the retailer of price increases from the end of this week or next week.
Buenos Aires has a fraught history with the IMF, and Fitch said policy credibility and market access could still be severely tested amid weak economic conditions, high public debt and inflation.
Argentina defaulted on its debt in 2001 during the worst economic crisis in its history, and it took years before it could restore its credibility in world financial markets.
Fernandez said this week he considered an exchange rate of 60 pesos to the dollar as reasonable and said it should no longer fluctuate wildly.