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Daily analysis 18.12.2015.

, author:

Marcin Lipka

Situation on the markets of the Mexican peso, Norwegian krona and Canadian dollar in the environment of low raw materials' prices, and changes in the Fed monetary policy. The zloty remains relatively strong, considering the external factors and uncertainty regarding the national monetary policy.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

  • 15.45: The service PMI from the USA (estimations: 55.9 points).

One look at the raw materials currencies

A clear overvalue on the raw materials currencies is created by the lowest quotations of oil in 7 years, and the strengthening dollar. Since mid 2014, the American currency expressed in the Norwegian krona more expensive by 45%, in the Mexican currency by 30%, and the Canadian by 27%. In mid-term, the price of oil, and exposition of the given country to the oil export are the main catalyst of movements on the NOK, MXN, and CAD. However, it is worth noticing that the local matters also play a significant role.

The Norwegian currency is mostly exposed on export of energetic resources among the mentioned currencies. Raw materials are approximately 50% of the Norwegian export. However, the economy is trying to fight this problem. The authorities increase the fiscal stimulation, and this year they have also decreased twice interest rates, which are now on the level of 0.75%. It is despite estimations of the central bank (Norges Bank), which say that inflation for 2015 and 2016 will be respectively 2.2% and 2.8%, whilst the target is 2.5%.

Additionally, the Norges Bank will probably cut interest rates again soon. One can come to such conclusions after yesterday's announcement from the monetary authorities from Oslo. It says that “if the economic events are coherent with our estimations, interest rates may be reduced in the first half of 2016”. Additionally, the latest macroeconomic projections of the central bank show that interest rates will be on the level of 0.4% in 2017. Thus, this may mean that we can expect even two cuts of interest rates in Norway next year.

By a mild monetary policy, and a significant price pressure on 50% of the Norwegian export, it is possible that the forthcoming months may be again negative for the NOK. Additionally, in the scenario of further depreciations in prices of oil and a maintaining strength of the American dollar, it is possible that the USD/NOK pair will test the historical peaks in the range of 9.6-9.8. They were reached in the mid 80s and at the beginning of this century.

The situation of the Canadian dollar is slightly different. Contribution of energetic resources in this country's region is by half lower than in Norway, and it is approximately 20-25%. Additionally, the Canadian economy may take advantage of a better business cycle in the USA. Although, current slowdown in the American industry makes this perspective more distant.

A difference between the American and Canadian monetary policy may also have a negative impact on the CAD. Currently profitability of the Canadian treasury bonds are slightly more than 0.5%. On the other hand, the American are on a level of approximately 1.0%. By a similar loan credibility of both countries, this difference is a result of different monetary policy. Good economic results of the United States allow to think that it will be tightened. In Canada, it is possible that it will be still eased, due to its closeness to the recession areas. Thus, the capital flow may also be a reason for further wear off on the CAD, especially in the scenario in which the raw materials will remain in their long-term minimums.

The local matters play a significant role in the case of the Mexican peso. Despite the fact that Mexico exports a relatively small amount of energetic resources (approximately 10%), and better results of the American economy should support the country, the USD/MXN pair is at its historical level, which is the area of 17.00.

However, the past days were quite positive for the peso. This was a result of an increase in interest rates by the central bank (Banxico). The monetary authorities are trying to introduce a monetary policy, which is coherent with the policy of the Federal Reserve. This means keeping a significant difference between rates of the Banxico and the Fed. Currently it is approximately 300 base case points. It will probably be kept on a steady level. This fact can stabilise the MXN to the dollar, even in the case of further decreases in oil prices.

Few words about the foreign market

Yesterday, and at the beginning of today's session in Europe, there were some quite chaotic movements on the EUR/USD. This may be a result of the market still adjusting to the situation after the Federal Reserve meeting, as well as the changes among the bigger market participants before the end of the year. In the past it happened that in the holiday season there were big movements in moments of a smaller liquidity. They occurred even despite a general trend. However, currently the possible base case scenario are movements in the mid areas of 1.08. Probably this is the range which will force the market to react on the macro information and statements from the central bankers in the following weeks.

Zloty is working off the loses

In the past few days we could see a relatively good behaviour of the national currency, and also the national debt market. The EUR/PLN went below 4.30, and profitability of the Polish 10-year-old debt decreased below 3.00%. At the same time it reduced a spread between the German benchmark to approximately 240 base case points.

A relatively positive behaviour of the zloty is also visible in relation to the Hungarian forint. Only at the beginning of December the zloty lost more than 2% to the HUF, in comparison to a 100-session average. Currently this loss has been practically evened out.

Ignoring the danger related to a lower liquidity in the holiday period, the market should focus more on the speculations regarding the candidates to the MPC. If the future monetary authorities are less dovish than it was expected, and the situation on the global capital market does not significantly deteriorate, there is a big chance for the EUR/PLN to go below 4.25, and the franc may cost less than 3.95 PLN.

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

Range EUR/USD 1.0850-1.0950 1.0750-1.0850 1.0950-1.1050
Range EUR/PLN 4.2600-4.3000 4.2600-4.3000 4.2600-4.3000
Range USD/PLN 3.9200-3.9600 3.9600-4.0000 3.8800-3.9200
Range CHF/PLN 3.9600-4.0000 3.9600-4.0000 3.9600-4.0000

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 5.9200-5.9600 5.9000-5.9400 5.9400-5.9800

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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