Afternoon analysis 12.09.2016:
Comments from Lockhart and Kashkari did not change the situation. The market is still anticipating Brainard's testimony. The zloty is clearly losing value. The euro is above the level of 4.35.
New statements from Fed members
Today, is the last day when the Federal Reserve representatives are allowed to speak of the monetary policy. This is because a break before the next FOMC meeting (scheduled on Wednesday) starts tomorrow. Therefore, this is the last possibility for the Fed representatives to comment on the economic situation.
Denis Lockhart's testimony was published this afternoon. The Atlanta Federal Reserve representative is slightly more hawkish than the consensus and his standpoint has been sustained. He thinks that a serious discussion regarding the monetary policy is needed next week. He also claims that the economy may be developing at the pace of approximately 2% this year.
When it comes to the matter of the labor market, he also thinks that it's positive. Moreover, the level of free workforce supplies is relatively small in his opinion. Therefore, Lockhart generally sustains his previous standpoint. However, it's worth keeping in mind that he doesn't have the right to vote regarding interest rates this year.
On the other hand, Neel Kashkari didn't say much regarding the current monetary policy in his interview. Information from the CNBC website, as well as from the Bloomberg newsletter, state that Kashkari doesn't see the necessity of any changes regarding the monetary policy.
However, this statement should be enough to assume that the Minneapolis Fed representative did not change his mind recently. At the beginning of August, he claimed that he doesn't see any inflation pressure and that the Fed has the luxury of time regarding rate hikes. However, Kashkari doesn't have the right to vote this year as well.
In conclusion, Lael Brainard's testimony (scheduled for 19.15 CET) will be the main even today. In our opinion, she will remain dovish. However, a real unknown is the matter of whether the market will reverse that has been started on Friday and will the dollar give away the majority of its pats week's growths.
The zloty's situation has clearly deteriorated in the afternoon. The EUR/PLN went above 4.35 and the dollar exceeded the 3.88 level. The majority of this move is caused by the flow of global capital related to a higher perspective of the market interest rates in the USA. However, today's inflation data for August from the Polish Central Statistical Office (GUS) didn't have much to do with depreciation of the zloty. This is because it has been consistent with the previously published reading.
When it comes to the zloty's perspective in the evening, very much will depend on how the market interprets Lael Brainard's testimony. If it is dovish enough to decrease the value of the dollar, profitability of treasury bonds and support shares, not only the USD/PLN will experience depreciation, but the euro may go down by 0.02-0.03 PLN as well.
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