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Afternoon analysis 01.03.2016

, author:

Marcin Lipka

Commodity currencies have pared some losses after the Brent oil jumped 30% since the January lows. A series of important data from the US. The zloty was quite volatile after the news regarding central bank management nomination for Glapinski.

Oil has created many moves, both on US equities and on major currency pairs. Its slump, toward 30 USD per barrel, was regarded as not only an oversupply effect, but also as an indication of some trouble concerning global economy and expectations of slower demand. As a result of crude slide, the dollar also weakened due to lower interest rate hikes expectations in the US.

It is worth noting however, that after the Brent appreciation, exceeding 30% from the lows around 27 USD/barrel, equities and currencies would probably decrease correlation with oil, as the fears about global economy will lessen and the commodity is expected return to oversupply discussion.

On the other hand, there will still be currencies that are supposed to strongly react to the WTI or Brent changes. This is primarily the rouble. Its slide to the dollar since mid-2014 was 60% when oil hit multi-year lows in January. However, since then the Russian currency gained 11% to its US counterpart.

A significant rebound is also observed on the Canadian dollar (CAD), which gained more than 8% since the beginning of the last third of January. It helped to trim the CAD depreciation from 28% to 21%.

The situation is slightly different on the Mexican currency. The peso weakness was regarded by many investors as a hedge for global risk. As a result the MXN recorded lows in mid-February despite higher oil valuation. Only the decision to raise the interest rates by 50 basis points, reduced pressure on the peso. Currently, the Mexican currency is around 27% below 2014 levels. During the February lows, the MXN was dropping more than 32%.

Valuations look relatively stable on Norwegian currency. The krone is about 30% lower to the dollar since mid-2014. However, a similar depreciation is observed since November of 2015, and new lows were not exceeded despite a further slump on the oil. On the other hand, the rebound on the Brent didn’t similarly push the NOK markedly higher. Partially fresilient conditions may be due to significant savings in the sovereign fund, which exceed 7 trillion ($800 billion; around $160k per capita). Norway also takes advantage of the fairly solid condition of its main trading partners – Germany, the UK or Sweden.

The data and zloty's volatility

Starting tomorrow, the set of key economic data is scheduled till the end of the week. Firstly, the ADP employment report is expected to hit the wire on Wednesday. In the longer term, they match with Friday's Labour Department publication, but sometimes preliminary numbers are misleading. Economists expect an increase of private payrolls to be at 188k for the ADP number.

A crucial publication may also be Thursday's non-manufacturing ISM reading. In January, it dropped below 50 mark, what can be regarded is that the US economy may be slowing also in the services sector. This reading was also mentioned by William Dudley today. Finally on Friday, the NFP are expected to hit the wire. It would be one of the last key pieces of data before the Fed's meeting in mid-March. The sum of all mentioned readings should shape the dollar sentiment.

Concerning the zloty market, some turmoil was created by the news of Glapinski’s nomination for the management board post in the central bank. Firstly, it might have been seen as a message that Glapinski would not lead the MPC, and the President may appoint the other, more dovish candidate.

Just after the message hit the wire, the EUR/PLN rose toward 4.35 level. However, this message was fairly quickly explained. Bloomberg quoting PAP news, wrote that Glapinski, “was appointed to Polish central bank's management board, in order to prepare for him becoming the next governor in June.” In early afternoon, the EUR/PLN returned below the 4.34 level.


This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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