Highlights:
- Czech koruna tests key support level as downward pressure continues, while forint seems to have found new trading range
- NBP’s Hausner says faster hikes could limit the scale of the tightening cycle
The Czech koruna stayed in defensive mode. Mounting risk aversion sent the pair to the 200-day moving average at 24.55 EUR/CZK, which is near the important March highs (at 24.59 EUR/CZK). Meanwhile the USD/CZK touched 2-months highs at 17.58. We continue to believe that under current negative interest rate differential conditions and worsening global sentiment, the koruna should stay under pressure. If the 200-day average is broken, the pair may go as high as 25.00. Nevertheless we do not see potential for longer term losses, as the CNB would probably start its hiking cycle a bit earlier to counteract the effect of weaker koruna. Current inflation forecast of CNB counts with the koruna at 24.00 EUR/CZK for the third quarter. Our hypothesis that the CNB would not allow the currency to ease significantly above the implied trajectory in the last projection was confirmed by the latest comment from CNB Board member Lizal, who said that the central bank could hike sometimes during the autumn, but the weaker koruna could bring a rate increase earlier. In this respect, its worth noting that the CNB projection for the EUR/CZK average rate is 24.1
The Hungarian forint seems to have established a new trading range between 270.00 and 271.00 as global risk aversion receded a bit on better equity market sentiment.
March retail sales data was weaker-than-expected at -0.9% Y/Y, down from 0.2% Y/Y from the previous month. Strong Swiss franc rate could weaken household consumption again in the spring and persistently weak domestic demand could undermine the recovery of the economy.
Faction leader of the ruling Fidesz party, Mr Lazar said that the government will propose a new central bank law to the Parliament in the autumn. He added that the government does not want to change the inflation target and that it will respect the independence of the central bank. Still, changes in the law about the central bank could concern investors.
Rising risk aversion due to a new round of worries related to Euro zone sovereign debt problems dragged down the Polish zloty. The EUR/PLN currency pair even touched 3.96 EUR/PLN in intraday trading, i.e. the highest level in last two weeks. Nevertheless, the zloty eventually managed to recoup part of losses and closed below 200 days moving average (3.955 EUR/PLN).
After a few days of silence following the surprising rate hike in May, Polish central bankers have started to express their latest thoughts. On Monday, Jan Winiecki and Jerzy Hausner joined the speakers’ club. Winiecki simply stated that the NBP remains in a monetary tightening cycle, whereas Jerzy Hausner explained that the main premise behind the last hike had not been current events but the choice of a certain line in the monetary policy. Hausner said that the acceleration of hikes offers the possibility that the total amount of tightening needed might be lower than in case monetary tightening would proceed slowly.