Changes (still) limited, but the zloty fell from the podium all the way to the bottom (Afternoon analysis 2.09.2020)

The zloty, along with the ruble, is the weakest currency in the group of emerging countries. The dollar emerges from the slump, and the next two days may create more space to improve the value of the US currency.

Employment in the US hospitality industry is growing

Wednesday was marked by a slightly stronger dollar. The exchange rate of the main currency pair, i.e. EUR/USD, fell at some point to about 1.1820, which is 0.7% below the level of yesterday's closing. This was helped by technical issues: breaking the 1.20 boundary and higher-than-expected activity in the US industry (according to ISM data for August).

In the afternoon, even before the beginning of the session on the New York Stock Exchange, ADP published data on the change in private sector employment in the US in August. The number of payrolls was expected to increase by 1 million, but the 428,000 increase failed to meet these expectations. Although ADP's reading is not ideally correlated with official data from the US Labor Department, which will be published in Friday's report, it may indicate a slightly slower return to activity in the US labour market than expected.

However, the ADP report was generally not so disappointing. The figures for July were revised upwards from 167,000 to 212,000, and the vast majority of the new payrolls in August was in the service sector. This was followed by an increase of 389 thousand jobs, most of which were in the hospitality and leisure industry (plus 129 thousand jobs), which was one of the worst affected during the pandemic.

An important test for the dollar, as well as for the zloty

Shortly afterwards, the US Census Bureau published data on industrial machinery orders that exceeded expectations. Although these data were for July, the monthly growth rate of 6.4% was maintained. Sustaining the relatively high growth pace of orders may suggest that industrial production shows a similar trend.

A more important test for the dollar will be the data on the number of initial jobless claims and activity in services according to ISM, but most of all, Friday's labour market report. If these publications give a positive impact, simultaneously strengthening the dollar, the zloty may depreciate.

We can already see the foretaste of this today when the demand for the dollar is slightly higher in the broader market. Moreover, assets valued in dollars, such as precious metals, are cheaper.

The zloty was one of the strongest currencies among the emerging countries in the past days, but today it fell almost to the bottom, only the ruble is weaker in relation to the main currencies. These are not fundamental changes. The EUR/PLN exchange rate rose to 4.42 and the USD/PLN exchange rate to nearly 3.74. Today's movement may, however, be more serious if further data from the US are solid enough to strengthen demand for the dollar.