The Polish zloty got off to a spectacular start of the session on Friday after foreign banks returned to the marketplace late on Thursday, allegedly intervening on behalf of the Polish Finance Ministry. As a result EUR/PLN pair edged past the psychological 3.80 support level overnight and hit the weeklong low of 3.97 EUR/PLN early in the morning. The confident rally past 3.80 could have opened the way to more gains, potentially leading the pair down to 3.75. This was not to be the case however. Instead, the zloty spent the entire day locked in the narrow 3.77-3.79 EUR/PLN range and eventually closed virtually unchanged. The market was taken somewhat by surprise by the MinFin and NBP in the afternoon as the two jointly announced that the limit for MinFin FX conversions through the central bank would be set at EUR 3.9 bn this year. This is interesting because up till now markets could only speculate on the actual conversion limit as this sort of information had never been divulged before. The EUR 3.9 bn limit is in fact quite high and allows the MinFin to perform all of the conversion operations planned for 2006 via the NBP. Whether the government will indeed make full use of this limit, hence restricting or even ceasing further market interventions, remains to be seen.
The C/A data will be in the center of attention today. Our estimate of EUR 600 m is slightly worse than the market consensus (EUR 530 m.) hence we could see a gentle correction in the zloty later today. Until then the market will probably stay range-bound although investors should start keeping an eye on politics as well.
(CSOB - Investment research)