The Polish zloty got of to a flying start of the session as the EUR/PLN pair erased a significant part of Tuesday’s losses on Wednesday morning, only to hit fresh 7 month highs heading into the long weekend. As expected domestic data (on inflation, C/A deficit and money supply) went by almost unnoticed with the market far more interested in the US CPI numbers. These came in softer than expected prompting a brief dollar rally and leading the EUR/PLN to the 4.03 area. The zloty’s losses were first capped and then reversed as the greenback erased all of its post-CPI gains in technical move a while later. Luck changed hands once again as selling resumed just before the end of the session pushing the zloty down to a 7 month low versus the euro at 4.0410 EUR/PLN. As for the current account data, the unexpected trade balance surplus (of EUR 62 m) helped reduce the C/A deficit to EUR -154 m. Interestingly exports grew by just 13% y/y (down from 23% y/y a month earlier), while the rise in imports was even more disappointing at just over 10% y/y (compared to 20% y/y in March).
Markets are closed for the Corpus Christi holiday today and many domestic players will take the day off on Friday as well so trading volumes should be relatively thin tomorrow. What happens next week will depend mainly on whether the global risk conditions soften or not with the June rate hike in the US already priced in. The Polish economy is among the strongest in the region so if and when they do we should see some flows back into Polish markets. Until then we expect more pressure on the zloty and sideways trade in the upper half of the 4.00-4.04 EUR/PLN range. EUR/CZK strugles to break above 28.38.
(CSOB - Investment research)