The zloty’s current level against the dollar, the euro or the franc is unlikely to be sustained. The Polish currency may lose value in the near future. We are currently dealing with a situation in which zloty depreciation is more likely than appreciation – said Bartosz Grejner, Cinkciarz.pl analyst.
The zloty has been strengthening against the dollar, the euro, the pound and the franc over the past three months. What was the reason?
Bartosz Grejner, Cinkciarz.pl analyst: - This was caused by a few factors. After negative economic data from Poland for October, investors thought that the country’s economic growth had decreased. However, the following three months appeared to be a positive surprise for the market, hence a strengthened zloty.
The other factors applied more to particular currencies. The dollar didn’t manage to sustain its upward trend that had been caused by the presidential elections in November. The euro was weakened by a very mild monetary policy from the European Central Bank. And the pound’s condition was negative due to Brexit. The zloty was also supported by the positive sentiment towards the emerging market currencies, which was also observed on the forint.
What kind of changes have occurred within this year’s first quarter?
- The zloty has strengthened 3% against both the euro and the franc, 4% against the pound and 6% against the dollar.
These changes are favorable for someone who has a loan denominated in the franc. However, people whose earnings are delivered in euros or pounds, would think otherwise.
- We need to be aware that currency exchange rates have always been volatile. However, the mentioned examples show that these changes can be very unambiguous for some people. We need to keep in mind that currency exchange rates impact entire economies, including export, as well as import. For example, if a currency is stronger, imported products become cheaper. The situation is reversed when it comes to export. Moreover, the profitability of both export and import translates to economic growth, which determines wages and employment, among others. The zloty’s fluctuations may also influence Poland’s foreign debt, which decreases along with the currency’s appreciation. Therefore, currency exchange rates have an impact on the lives of all of us, whether we want it to or not.
What are your forecasts for the forthcoming months?
- The zloty’s current level against the dollar, the euro or the franc is unlikely to be sustained. The Polish currency may lose value in the near future. Let’s analyze a few factors. The profitability of American bonds, as well as the dollar, will most likely increase after the American administration implements changes. I’m talking about lowering taxes and increasing infrastructural expenses, among others. The European Central Bank has started suggesting a more restrictive monetary policy. Moreover, this institution will abandon the QE program at the end of 2017. If the ECB does not extend this program, or at least mention such a scenario, the euro may be strengthened significantly. In addition to all of this, Poland’s monetary policy may wear-off the zloty. During the previous press conference, the National Bank of Poland representatives suggested that interest rates may not only remain unchanged in 2017 but also in 2018. This would cause depreciation pressure on the zloty, especially taking into consideration that interest rates in both the USA and the eurozone will most likely increase.
Since the zloty’s current strength is determined by other currencies, will local events be able to wear-off the Polish currency?
- One of the main local events that determines the zloty’s behavior is the local monetary policy. The recent signals from the National Bank of Poland suggest a very mild approach, which would be negative for the zloty. Increasing inflation is positive for the zloty because this may increase the likelihood of rate hikes in Poland. However, this index’s recent growth was caused by the global increase in raw material prices, which have become stable. The data from Poland can also be crucial for the zloty’s evaluation. Additionally, there are announcements from the rating agencies. Their evaluations are mainly determined by actions from the Polish government. If these actions lead to a significant increase in public debt, the rating is downgraded and the zloty weakened.
Should one anticipate more favorable exchange rates or buy currency now?
- Currency exchange rates may be very volatile in the short-term. Therefore, it’s very difficult to define a perfect moment to buy currency. The best idea is to stagger your purchase. That way, you will limit the risk of unfavorable exchange rate fluctuations. However, the zloty’s depreciation potential is much larger than its appreciation potential. So, exchanging currency now seems to be an optimum solution.