The Czech koruna eased on Wednesday as
lower June inflation (and thus a lower
chance for an early hike) and renewed
weakness of the Slovak koruna put the unit
under downward pressure. The Czech
currency was gradually losing ground after
the inflation release and downward pressure
intensified when the neighboring SKK fell
into trouble again. Hence, the EUR/CZK
moved north and tested the 28.50
resistance. The FX intervention in favor of
the SKK temporary helped the Czech koruna
too but the positive impact was only limited.
So, there was no recovery at the end of the
session (contrary to the Slovak FX market).
Meanwhile, the Czech currency once again
ignored the ongoing political deadlock as
either big party (conservative ODS or leftwing
Soc-Dem) is not willing to make any
compromise, which would allow to elect a
speaker of the Parliament and possibly to
approve a new government.
This morning, the koruna shrugged-off
excellent May industrial output data (12.5%
y/y) and continues to concentrate on the
development in the region, particularly on
the Slovak FX market. Beside the release of
the industrial output data, the other eyecatcher
will be the release of the May
balance-of-payments figures. The May
current account was particularly affected by
the foreign trade deterioration. We also
expect that the May income balance to be
well in the red due to dividend payments and
reinvestments. Hence, we expect (as does
the market) the overall current account to
turn into a deficit of CZK 12.5bn. Should the
deficit come higher, the koruna could be
disappointed in some way.
(CSOB - Investment research)