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Polish zloty strengthens further supported by strong growth data central bank comments

Polish zloty strengthens further supported by strong growth data central bank comments

19.5.2011 11:21

Dovish camp of CNB continues to talk
The Czech koruna extended its weakening trend to the 24.50 EUR/CZK level. Despite stronger equities and a slightly weaker US dollar, the Czech currency remains in defensive mode. The technical factors (break through 55-day moving average) as well as ongoing dovish talk of central bankers continue to weigh on the Czech currency. Yesterday the vice-governor Mojmir Hampl stated that he is comfortable with current dovish inflation forecasts, which implies first interest rate hike as far as in the last quarter of the year.
For the sessions ahead we continue to believe in the defensive mode and see the koruna testing 200-day moving average currently at 24.55 EUR/CZK. If breaking through, the next target could be as far as 25.00.
On the other hand the ongoing dovish talk coming from the CNB bring additional support for Czech bonds. Currently, bonds yields are at six months lows. In this respect we think that the weakening koruna might sooner or later turn trend on the money market and push rates higher, so it will end the current bullish trend on the domestic bond market.


The Hungarian forint weakened to a new 2-month low of 269.80 EUR/HUF after the government announced a new proposal to help troubled borrowers. The proposal would fix the CHF/HUF rate at 160 and the EUR/HUF rate at 250 on foreign exchange linked loans, which became non-performing. The foreign exchange differential would be set aside to a special forint denominated account and would increase the outstanding loan amount. Before this, a new agreement seemed to be formulated between banks and the government, where the CHF/HUF rate would have been fixed at 190. In light of this, the new proposal came as a surprise and banks may not agree on it as a too low CHF/HUF rate fixing would not allow for repayment of the capital from the monthly installments.


NBP’s Belka: Sales of EU funds do not substitute rate hikes
The EUR/PLN currency pair edged below 3.92 EUR/PLN on Wednesday. Several factors play in favor of the zloty. First, higher than expected growth of average gross wages (5.9 % y/y vs. expected 4.7 % y/y) in April might indicate secondary effects of higher commodity prices are growing (although with respect to the inflation at 4.5 %, the pace of growth is far from enormous).
Second, the dovish member of the Monetary Policy Council, Elzbieta Chojna-Duch said yesterday that market expectations of two more hikes this year may be justified. Moreover, the president of NBP Marek Belka said today that the sale of European funds were not substitute for rate increases and that the central bank still remained in a tightening cycle. On the other hand, Belka added that the inflation impulse was with full certainty running out.
Therefore, we believe that the zloty might stay in a positive mood in sessions ahead. Technically speaking, we see the next target at 3.89 EUR/PLN (this year’s low).


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