Daily analysis 04.03.2015:
Quick return to multi-year highs on the dollar. Insider trading before the RBA decision? Ukraine rises interest rates to 30%. The zloty slides with other currencies in the region. Afternoon MPC rate decision in focus.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- Probably between 12.00 CET and 14.00 CET interest rate decision from Poland (survey: cut by 25 bps to 1.75%.
- 14.15 CET: ADP data on private payrolls (survey: 219k).
- 16.00 CET: MPC statement decision and Marek Belka conference. GDP and CPI projections for the central bank inflation report.
- 16.00 CET: US ISM services index (survey: 56.5 points).
Close to multi-year lows
Since the end of European session on Tuesday the EUR/USD has been traded close to the 1.1200. However, during the morning moves investors experienced a significant downside which pushed the common currency below 1.1120. There was no crucial information at the time but the decision from Luxembourg court claiming that it is not essential to form the clearing house inside the eurozone
The ECB wanted to establish to the institution inside the common currency territory. It was against the UK interest who using its own clearing house monitors financial transactions. Overall the issues should not significantly impact the currency but a temporary pound appreciation on the global market and closeness to the multi-year low on the EUR/USD caused that the issue was used to push the euro even lower.
Besides the Luxembourg court decision we also received the PMI data from the eurozone services. The final German data was slightly lower than the preliminary reading (53.8 vs 54.3) but the overall message was positive. Chris Williamson, chief Markit economists claims that “the outlook has brightened for all countries”. Williamson also notes that due to some fears regarding Grexit has eased and the QE introduced by the EBC should stimulate the economy.
Despite fairly solid data from the euro area the common currency should remain under strong pressure. To witness its significant rebound we would have to get a set of weak data. Moreover, it may not be enough especially that the ECB meeting and Labour Department publication are scheduled for the second part of the week.
Insider trading before the RBA decision?
Australian authorities began investigation regarding a significant AUD appreciation. The Aussie jumped before the unexpected information to leave interest rates unchanged. Additionally, the RBA announced that the statement was published exactly at 14.30 local time and the strongest move occurred in seconds earlier.
Moreover, “The Wall Street Journal” reminds in May of 2014 two people were arrested regarding the insider trading. An employee from government statistical office and a person form a leading bank were accused to exploit material data.
Interest rates in Ukraine
On Tuesday the Ukrainian Central Bank (NBU) raised interest rates from 19.5% to 30%. Theoretically the MPC decision should help hryvnia, lower inflation and prevent the deposit outflow. Regarding UAH we see a rapid appreciation to the dollar but it may be a result not only from monetary tightening, but also due to further NBU intervention which wants to show that it somewhat controls the situation.
On the other hand, the stability of financial system or the inflation reduction may be much harder. Only this week 4 banks went bankrupt including 4th largest institution in terms of assets – Delta Bank. The key element in that extremely difficult situation is March voting at the IMF to accept the 17.5 billion financial aid. It would be also important how large part of the package is set to be transferred immediately.
The foreign market in a few sentences
There are slim chances for the EUR/USD to generate a rebound. Even if we see weak data from the US, the readings may fail to push the dollar far from the recent highs. Only a disappointing publication for the Labour Department may stop the sliding pressure on the EUR/USD.
The zloty significantly weakened
The latter part of Tuesday's session and today's were unfavourable for the local currency. The EUR/PLN rose above 4.17 and the pound recorded multi-year highs. The zloty's weakness was, however, not caused by the data from local economy but rather a slight sentiment slowdown regarding emerging markets. Since the beginning of the weak the forint lost around 1.5% to the euro.
In the afternoon the market should focus on the MPC decision. The Committee probably lowers interest rate by 25 bps what should be announced before 14.00 CET. If that was the case we can see a slight appreciation of the zloty, but still the conference should be the most important. If it is just a one-time-cut, the zloty should appreciate toward 4.15. On the other, hand if Marek Belka leaves door open to further easing the PLN should slightly weaken.
Today the Committee is also scheduled to publish GDP and CPI projections from the most recent Inflation Report. However, much more interesting would be new expectations regarding core CPI. If its path is lowered for 2016 it may be another argument to cut the benchmark in the future.
Summarizing, today's MPC decision and the statement would be crucial for the PLN valuation. If we get more hawkish approach we should see EUR/PLN to slide toward 4.15. On the other hand, in a scenario of 50 bps cut and a publication of more dovish statement we may not exclude EUR/PLN trade at 4.20. Cutting the benchmark to 1.75% and keeping a dovish approach is not prone to significantly impact the PLN.
Expected levels of PLN according to the EUR/USD rate:
Expected GBP/PLN levels according to the GBP/PLN rate:
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