The Czech koruna opened last week at CZK 29.220 per
EUR. At the beginning of the week it moved within the
bounds of CZK 29.20-29.36 per EUR but on Monday it
received a somewhat negative stimulus of a lower-thanexpected
trade balance surplus. On Tuesday, by contrast,
surprisingly higher consumer inflation increased market
expectations of a future rate hike, and this encouraged
rather than discouraged the Czech currency. However,
specifically the second half of the week was particularly
affected by the uncertainty before Thursday’s vote on the
new government in the Lower Chamber of the Polish
Parliament (the Sejm). Hence the koruna weakened
significantly on Thursday until it reached the barrier of
CZK 29.48 per EUR. Nevertheless, it immediately
bottomed out and, at the end of the week, after the new
Polish government was given the go-ahead, it strengthened
significantly, notwithstanding the closed markets in Poland,
and tested the technical barrier of CZK 29.16 per EUR at
the opposite end of its fluctuation band.
The reaction of the region to the result of the Polish
elections will be important at the beginning of the week.
Not only Polish but also many other world markets were
closed on Friday. We believe that investors will view
positively the mere fact that Poland has a new government
after the long election marathon. On the other hand, we
should keep in mind that approving the proposed
government is no big surprise for markets, and that we
cannot expect any substantial economic reforms from this
instable minority government, supported by populist parties.
Therefore we do not anticipate a major positive stimulus for
the Czech koruna from this approval. As far as other data
releases of this week are concerned, particularly the
expected current account improvement may encourage the
koruna somewhat. The other domestic figures including
retail sales are likely to have a negligible effect. That is why
we believe that, in spite of the sound fundamental
development of the domestic economy, the koruna will lack
enough stimuli to strengthen to less than CZK 29.16 per
EUR this week. The surprising strengthening of the dollar
may, to a certain extent, also have a negative impact on the
Czech currency.
(CSOB - Investment research)