Daily analysis 11.12.2015

, author:

Marcin Lipka

The SNB leaves interest rates unchanged, but still suggests that the Swiss currency remains overvalued. The NZD gained some value after the RBNZ cut. Polish currency remains weak and the CHF/PLN is traded above 4.00.

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

  • 14.30: Weekly jobless claims from the US (survey: 270k).

No surprise from the SNB

No interest change was announced by the SNB in late morning. The decision was in line with Bloomberg median projection. The central bank still claims that the “franc is still significantly overvalued” and noted that “the negative interest rate and the interest rate differential with other currencies make the Swiss franc less attractive and continue to help weaken it”.

It was also repeated that “the SNB will remain active in foreign exchange market in order to influence the exchange rate situation, as necessary”. Regarding the macroeconomic projections the inflation for 2016 should remain at minus 0.5% while expectations for 2017 were reduced by 0.1 percentage point since September and the SNB sees the CPI at 0.4% in two years.

Concerning the global economy the SNB sees “slightly downwards for the short term”. It also noted “structural weakness in Europe as well as current concerns about public safety could also weigh on economic developments” Overall, however, the SNB sees the economy as “cautiously optimistic”.

During the press conference Thomas Jordan, president of the SNB, pointed out that the euro is currently very weak to the euro and he didn't exclude further rate cut. He didn't want to answer whether the cut was discussed today.

Summarizing the available data we can conclude that the SNB, despite some negative outcome form the stronger franc, is reluctant to ease the monetary policy. Moreover the MPC would like to keep some tools in case of more QE from the ECB. Currently the SNB would probably like to stabilize the EUR/CHF rate between 1.07-1.10 at least for weeks if not for months.

New Zealand cut interest rates

The RBNZ cut yesterday the benchmark rate by 25 bps to 2.5%. It was in line with median expectations from Bloomberg. Just after the decision hit the wire the NZD dropped by later it rebounded by around 100 pips to 0.6750.

Probably the main issues which pushed the NZD higher was phrase that “We expect to achieve this (inflation near middle of the target range – auth.note) at current interest rates settings” Despite that the RBNZ suggested later that the “Bank will reduce rates if circumstances warrant” but currently the odds for such move remain low.

On the other hand the NZD appreciation to the USD may be short lived due to incoming monetary tightening from the US and some slowdown in the Asian economies which are the main trading New Zealand partners.

The foreign market in few sentences

The recent hours clearly showed how the EUR/USD is dependent on the global sentiment especially when the macroeconomic calendar is empty. Probably the similar situation should remain valid till the mid of next week when the Fed's decision on monetary policy is scheduled to be announced.

Polish currency remains under pressure

The zloty remains under pressure as the EUR/PLN hit 4.35 during the Asian trading. The main reason behind the PLN weakness is still high level of uncertainty regarding both fiscal and monetary policy. Bloomberg cited today Viktor Szabo from Aberdeen Asset Management who “is pulling money out of Polish bonds” due to “proposed easing rules in place to restrain public spending”.

Additionally there is some global sentiment deterioration which is also visible on Hungarian forint weakness. In such environment it would be difficult for the zloty to regain losses fast. Moreover the trading during holidays may be volatile as it was seen last year.

Regarding the franc trade after today's SNB decision it would probably not have a significant impact on the CHF/PLN. The central bank is supposed to keep the EUR/CHF rate fairly stable so the CHF/PLN valuation would be mainly related to the EUR/PLN rate.

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

Range EUR/USD 1.0550-1.0650 1.0650-1.0750 1.0450-1.0550
Range EUR/PLN 4.2600-4.3000 4.2600-4.3000 4.2600-4.3000
Range USD/PLN 4.0000-4,0400 3.9600-4.0000 4.0400-4.0800
Range CHF/PLN 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150

Anticipated GBP/PLN levels according to the GBP/USD rate:

Range GBP/USD 1.4950-1.5050 1.4850-1.4950 1.5050-1.5150
Range GBP/PLN 6.0400-6.0800 6.0000-6.0400 6.0800-6.1200

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 Sp. z o.o is prohibited.

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