Last week the Czech koruna followed in the footsteps of
the appreciation trend of the end of the previous week,
when the CNB raised its key interest rate to the same level
as that of the Eurozone. In the first half of the week the
improved sentiment towards the region, stemming from the
appreciation of the zloty in particular, made the koruna
strengthen close to CZK 29.5 per EUR. The lack of major
events at the end of the week indicated that the koruna
might not be strong enough to continue to appreciate.
However, the fact that Eurozone rates remained unchanged
and the lack of significant hawkish comments from the
ECB gave the koruna the needed power during Thursday’s
trading to break through the technical barrier of CZK
29.4 per EUR. Thus the Czech currency firmed to CZK
29.25 per EUR on Thursday and, after a moderate
correction, closed the week at around CZK 29.30 per EUR.
The koruna should remain strong this week, even if the
Central-European region receives additional negative
stimuli, mainly from the Polish political scene. September’s
foreign trade surplus may have a positive effect, as the
koruna could strengthen to less than CZK 29.25 per EUR in
reaction. Our opinion is, however, that breaking through
more barriers, particularly that of CZK 29.15 per EUR, will
require stronger stimuli. In addition, the expectations of a
major rise in U.S. rates and the strengthening dollar may be
unfavourable for the whole of Central Europe.
This week will be very eventful. Tuesday’s inflation data
will be crucial in particular; it should include the first
portion of the increase in energy prices and in some
regulated prices. If the actual data is very different from the
consensus (0.6%), the market mood might change.
Wednesday’s 15Y bond auction will also depend on this.
The government will supply the 3.75/2020 bond for CZK
8 bn. Demand will probably be high enough for the entire
amount to be subscribed, although we do not expect
demand to exceed supply significantly. Unless the inflation
data springs a major surprise, the market will be, as usual, at
the mercy of the development of the euro market in
particular. That is why we expect stagnation rather than
changes on the bond market.
(CSOB - Investment research)