Daily analysis 18.08.2015:
The dollar is stable before Wednesday's CPI readings and minutes publication. Is it possible that the zloty can be regarded as an EM safe haven currency? The EUR/PLN is around 4.16. Readings from both Polish industrial production and retail sales are scheduled for tomorrow.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 14.30: Building permits from the US in July (survey: 1,228 million, seasonally adjusted, annualized reading).
- 14.30: Housing starts (survey: 1.18 million, seasonally adjusted, annualized data).
Waiting for Wednesday developments
Not much attention was brought by Monday's data from the US. It is a fairly logical approach due to the fact that the Empire State index is usually pretty volatile and the sentiment inside the builders (NAHB) does not always set the future condition regarding the housing market in the US.
However, much more volatility can be seen regarding the CPI readings from the US and the minutes publication from the last Fed meeting. Both events are due on Wednesday. Despite the fact that the Federal Reserve is more concerned with the PCE price index the CPI can give some viable hint to the inflation. The most important news will be the reading excluding food and energy. If the core data rises above 0.2% m/m and 1.8% y/y then the dollar should benefit markedly.
The minutes should also be seen as an important publication regarding the US monetary policy. In our view, the discussion during the last FOMC meeting was more dovish than the market expects. A small change in the statement could have produced much more discussion inside the Committee, which can be regarded as fairly dovish. Additionally, probably China was also mentioned by the members and when the market combines it with the recent PBOC decisions on the yuan devaluation the FOMC can be regarded as more benign.
No major issues are expected from Wednesday's voting in the Bundestag regarding the Greek third bailout plan. The CDU/CSU + SPD cabinet should not have any major problems to accept the help for Athens especially that both Merkel and the finance minister have backed the plan.
Can zloty benefit from EM turmoil?
When we look at the emerging markets (EM) currencies around the world there are very few bright spots. Asian currencies are either sold due to a commodities slump or due to political turmoil. Additionally, investors are afraid about the most recent yuan devaluation which is regarded by many as a Beijing weakness, which can threaten export in the whole region.
The situation does not look better on the Turkish lira or South African rand. Ankara is under pressure from a political stand off, high current account deficit and conflicts in the region. On the other hand the most developed African nation is seen as a victim of a commodities slump and high current account deficit reaching 5% GDP.
Bearish prospects are also seen for the Russian rouble and currencies in Latin America. The Brazilian real is under pressure from the commodities sell off, corruption scandals and high inflation. What is also worth noting that all the mentioned currencies are in the “dollar zone”, which means that they are also under pressure from the interest rate hike perspective in the US.
In the competition for the best of the weak links, we can look at currencies in our region and especially at the zloty, which is the most heavily traded. The Polish economy is benefiting from the lower oil price, rebound in the eurozone and loose monetary policy conducted by the ECB. Additionally, we have fairly high real interest rates which should keep the portfolio investors even when the Fed starts its monetary tightening.
Due to the higher competitiveness of local entrepreneurs and lower commodities prices the current account in Poland is balanced, which means that there is no need for the foreign capital inflow. Of course, there are some threats – the October election for example. However, if a stable coalition is built by one or the other leading parties then the political risk is going to lessen markedly. If the global situation does not change we can even see some zloty appreciation to the basket of foreign currencies.
The foreign market in a few sentences
Today the macro calendar is fairly empty and there are only readings from the US housing market. The data will have to significantly differ from surveys to cause more visible volatility. Investors are expected to wait for Wednesday's CPI reading from the US and publication of the Fed's minutes. The base case scenario for the EUR/USD is to remain slightly below 1.11.
Stable on the zloty
The perspective for the zloty mentioned in the previous paragraphs is seen in the medium term. In the coming days, the most important information will be the local macro data readings and the Federal Reserve minutes. Wednesday's readings from industrial production might be slightly better than expected taking into account the strong import and export combined with solid PMI publication. This may help the zloty slightly but the slide below 4.15 per euro is still not the base case scenario.
Today trading is expected to be fairly calm. The zloty should withheld a slight morning appreciation, and market participants will rather refrain from more significant decision.
Anticipated levels of PLN according to the EUR/USD rate:
Anticipated GBP/PLN levels according to the GBP/USD rate:
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