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Daily analysis 23.07.2015

, author:

Marcin Lipka

Greece accepts another set of laws required by the creditors, but much more important acts are under way. Commodities currencies should remain under pressure. The New Zealand dollar rebounds despite a rate cut. The zloty remains stable to most currencies.

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

  • 14.30: Initial jobless claims from the US (survey: 278k)
  • Tomorrow at 9.00: French preliminary PMI readings from manufacturing and services (survey: 50.8 points and 53.8 points respectively)
  • Tomorrow at 9.30: German preliminary PMI readings from manufacturing and services (survey: 51.9 points and 54.0 points respectively)

More important votes on the horizon

During the night voting regarding the new laws finished in Athens. Changes on orderly bank resolution and civil law required by the creditors was backed by most of the MPs. However, another time Tsipras had to count for opposition support due to the fact that 36 members of Syriza didn't vote in line with the government.

It is worth noting that more important decisions still have to be settled in a matter of two weeks. Cost cutting in the public administration, balanced pension system, more flexible job market and privatization. Because in most cases the issues would be connected with significant wages or state benefit cuts we should expect more rebellion in the Syriza coalition.

Still, despite some protests inside the ruling party, most of the law will be implemented by the parliament thanks to opposition support. Much more important is the condition of the government which have to implement the measures and the situation on the ground. These issues will be crucial in the fall.

Pressure on commodity currencies

Finishing the day with WTI crude being below the 50 USD mark is another element pushing the commodity currencies lower. Yesterday oil inventories also rose in the US. Currently 464 million barrels are held in the States which is around 90-100 million more than in the same period last year.

Crude is also under pressure from Teheran comments. Iranian Oil minister said at the beginning of the week that his country would like to regain the 2nd largest export member position in the OPEC even if it pushes prices lower. Bijan Namdar Zangeneh wants to increase the daily production to 4 million barrels from around 3 million currently. It would allow an increase in export of 700k-800k barrels a day.

Zangeneh also wants “as quickly as possible” to increase production by an additional 700k barrels to 4.7 million a day. It would push the export to around 1.5 million barrels a day comparing to the current estimations. As a result it would double the current oil market glut.

If these estimations turn out to be true the pressure on WTI or Brent should remain for the majority of 2016 and in the coming months new lows on both benchmarks should be seen. It is a negative signal for the Norwegian krona, Russian ruble or Canadian dollar. Another crude slide will not only worsen the current account balance but also push the central banks to implement a looser monetary policy, which should bring another wave of pressure on the mentioned currencies.

Only short term relief on the NZD?

For 3 months the New Zealand dollar (NZD) has had significant pressure. Due to falling dairy prices, which is the main source of export for the county, the central bank had to reverse its monetary policy and return to cutting rates.

Yesterday, however, the RBNZ meeting had an interesting outcome. The MPC lowered the benchmark in line with estimates but looks to be less concerned with the overvalued currency. It pushed the NZD higher by around 1.5% after a constant 12% slide in the last 3 months.

However, there is still a considerable amount of risk that the weakening NZD trend will be continued and the RBNZ would lower the borrowing costs at least two times this year. Also the new macroeconomic projections might show that a further economic slide might be deeper than the market expects, which would deepen the rate cut expectations and push the currency lower.

The foreign market in a few sentences

In the empty macroeconomic calendar the market managed to generate a correction on the EUR/USD pushing the main currency pair toward 1.10. There is, however, a slim chance that such levels can remain till Wednesday's Federal Reserve meeting, which may prepare market participants to the September rate hike.

Stable zloty is the base case scenario

Further EUR/USD rise pushed the euro-zloty rate toward 4.12-4.13. The dollar fell to around 3.75. However, taking into the account the next week Federal Reserve meeting there is higher probability that the US currency would resume its upward trend the USD/PLN may return toward 3.80 fairly quickly

For few days we are observing calm trading on the Swiss franc. The EUR/CHF trade around 1.05 limits the risk that the CHF/PLN may return to above 4.00. As a result in the coming days the Swiss currency should remain calm.

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 4.1000-4.1400 4.1000-4.1400 4.1000-4.1400
Range USD/PLN 3.7400-3.7800 3.7800-3.8200 3.7200-3.7600
Range CHF/PLN 3.9200-3.9600 3.9200-3.9600 3.9200-3.9600

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

Range GBP/USD 1.5450-1.5550 1.5350-1.5450 1.5550-1.5650
Range GBP/PLN 5.8000-5.8400 5.7600-5.8000 5.8400-5.8800

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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