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Daily analysis 03.03.2015

, author:

Marcin Lipka

No appetite for weaker dollar. The best retail sales data from Germany since more than 4 years. The Australian central bank decides to keep interest rate s unchanged despite that most economists predicted a cut. The zloty stabilizes before MPC decision on Wednesday.

Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.

  • No macro data that may significantly affect the analysed pairs.

The data with no impact on currencies

The macro data published yesterday were pretty close to market estimates. The PCE inflation from the US both on m/m (+0.1%) and y/y (+1.3%) basis was in line with expectations. About 0.1 percentage point lower was reading on the personal income. However, it was too small a difference to generate a significant impulse on the market, especially given that the investors still have in mind fairly hawkish comments from the FOMC members and additionally they were before the ISM publication.

The expected manufacturing condition was also in line with expectations and the index dropped to 52.9 level. This time the “headline' data was slightly more bullish than the details. The ISM experienced a slide in production and expert. It is also worth noting that the employment slided for the second month in the row to 51.4 points and was the lowest level since mid 2013.

Concerns regarding weather impact on the manufacturing weren't confirmed. However, the other problem occurred. Businesses related to export are getting more affected by port workers protest in West Coast. Currently we may assume that the situation is temporary and should not be a great issue for the economy or become an argument to change the view on monetary policy. As a result the reaction on FX was fairly muted.

Returning to Europe it is worth noting a solid retail sales from Germany. The year on year data for January was the strongest since mid 2010 and rose by 5.3%. Additionally, the December reading was revised upward to +4.8%. Currently it is hard to say whether the volatile data returned to solid growth but the trend clearly got better recently.

Better than expected data from Germany didn't support the euro. It is clear now that before the key data from the US economy and Thursday's ECB meeting or after hawkish comments form the Federal Reserve it would be pretty hard to generate even a small correction on the EUR/USD.

The RBA kept interest rates unchanged

From the beginning of the year central banks around the world have made many surprising decision. Mainly it was much more dovish stance than expected. The RBA also surprised with a cut, but it was in February. Yesterday, however, despite the fact that most economists expected another interest rate reduction, the RBA chief announced that cost of capital remains unchanged at 2.25%.

The Australian dollar gained some value but the AUD appreciation quickly faded due to fairly dovish statement. Glenn Stevens claimed that “Futher easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target”

The AUD still should be under pressure. Another cut is almost certain. If the commodities price fails to rebound and in case of slower than expected growth in China the RBA may be forced to trim the benchmark below 2% in first half of the year.

The foreign market in a few sentences

Monday's readings were not enough to weaken the dollar. The market is still more focused on recent Fed members comments on probable interest rate hike between June and September of 2015. Until a strong argument against this scenario occurs (weak Friday's payrolls), the dollar should remain at record high level.

Narrow range

The recent hours were fairly stable on the zloty. The local currency against the euro has been between 4.15-4.16 range. Due to slightly higher EUR/CHF the frank managed to remain around 3.87 to the zloty. We should not expect a significant move before the MPC meeting.

The base case scenario for the MPC is 25 bps interest rate cut and a fairly dovish statement which in case of weaker economy or inflation may be able to cut the benchmark further. The statement may also be excuse for more easing when the capital inflow push the zloty too high.

Other scenarios are much less probable despite a fairly wide range of economists' projections. Beside the 25 bps cut there is a possibility of keeping the benchmark unchanged (bullish for the PLN) or a cutting it by 50 bps which can markedly depreciate the PLN especially when combined with dovish stance.

Expected levels of PLN according to the EUR/USD rate:

Range EUR/USD 1.1150-1.1250 1.1050-1.1150 1.1250-1.1350
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.6700-3.7100 3.7000-3.7400 3.6400-3.6800
Range CHF/PLN 3.8600-3.9000 3.8600-3.9000 3.8600-3.9000

Expected GBP/PLN levels according to the GBP/PLN rate:

Range GBP/USD 1.5350-1.5450 1.5250-1.5350 1.5450-1.5550
Range GBP/PLN 5.6900-5.7300 5.6700-5.7100 5.7100-5.7500

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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