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Daily analysis 04.08.2015

4 Aug 2015 12:46|Marcin Lipka

The US data published yesterday should not change the Fed's approach. The rouble is still under pressure. The AUD rebounded after the central bank announcement. Polish currency remains stable, but after solid PMI one might have expected some appreciation.

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

  • No macro data which may significantly affect the analysed currencies.

No signal from the US data

The data published from the US on Monday should not give clear indications to the Federal Reserve regarding future moves. Taking the revisions from the last month into account, both income and spending data were in line with market expectations. Also, the core PCE inflation stays close to the Fed's consensus.

No major conclusions can be drawn from yesterday's ISM publication. The fact that the ISM dropped from 53.5 points to 52.7 does not have to mean that the manufacturing growth in the US has slowed down. The indexes of new orders and production significantly rose to 56.5 and 56 points respectively.

On the other hand, the negative signal was sent by the employment index which dropped from 55.5 to 52.7. But in the description we can read that 10 out of 18 industries reported employment growth and the rest announced a fall. This mainly comes from petroleum and coal, which is connected with the price slump of energy commodities.

A significant drop was recorded on the prices subindex – form 49.5 points to 44 points. But this may also be related mainly to the price fall of the energy and metal commodities.

When commenting on the data, the ISM chairman Bradley Holcomb wrote that “the panel reflects a combination of optimism mixed with uncertainties about international markets and the impacts of a continuing decline in oil prices”.

The Federal Reserve will have a hard time to interpret the data. The mix of falling prices and employment cuts in the mining industry combined with fairly strong growth in other parts of the economy will not pave a clear way forward.

The rouble remains under pressure. The AUD rebounds

The slump of Brent crude below 50 USD during Monday's session is mainly a hit for the Russian currency. Today the dollar was worth almost 64 rouble. In the short term, we may expect some short term rebound both on the rouble and the oil. But in medium term the situation on energy commodities remains tense.

Iron ore and other industry metals price slide and some economic issues in China were putting pressure on the Australian dollar. Additionally, the central bank (RBA) was suggesting that the AUD remains too strong. The latter, however, has changed. In August statement the RBA erased a part that further depreciation is probable and preferable due to a significant fall of main commodities.

We may expect that the RBA would like to stabilize the AUD close to the current levels. However, if the slide on iron ore continues and there is no improvement regarding manufacturing in China, the AUD would have a hard time climbing against the US dollar especially that in the short term perspective we can expect monetary tightening across the pond.

The foreign market in a few sentences

Today there is hardly any reports from the US economy. The market might have to wait for tomorrow's ADP publication. Despite the fact that the data collected by the private agency often differs from the official publication from the Labour Department, this time the market pays a lot of attention to any signal which may give a hint about future Fed moves. As a result, even a small (20k) deviation from the consensus (215k) may bring stronger changes on the dollar before the “payrolls” on Friday.

Problems on the zloty

Despite the fact that the base case scenario for the zloty is still stabilization to the euro, it is worth noting some surprising behaviour on the EUR/PLN. After solid PMI readings from the Polish economy the zloty strengthened to 4.13 per euro. The appreciation of the local currency didn't last long and it ended the session around 4.15.

The weak zloty during solid economic reports increased the odds that when we see some softness on the global market or EM currencies sell off the Polish currency may weaken significantly. The zloty can also be under stronger pressure when local data fails to meet expectations. In any of these scenarios the EUR/PLN may quickly rise toward 4.17.

Today, however, we should expect stabilization on the PLN but the euro valuation should be moved toward the 4.14-4.15 level. A similar situation may also be seen on the Swiss franc which should be quoted around 3.91-3.92.

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

Range EUR/USD 1.0950-1.1050 1.0850-1.0950 1.1050-1.1150
Range EUR/PLN 4.1200-4.1600 4.1200-4.1600 4.1200-4.1600
Range USD/PLN 3.7200-3.7600 3.7600-3.8000 3.7000-3.7400
Range CHF/PLN 3.9000-3.9400 3.9000-3.9400 3.9000-3.9400

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

Range GBP/USD 1.5550-1.5650 1.5450-1.5550 1.5650-1.5750
Range GBP/PLN 5.8800-5.9200 5.8400-5.8800 5.9200-5.9600

4 Aug 2015 12:46|Marcin Lipka

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 acknowledgement of the source is prohibited.

See also:

4 Aug 2015 10:21

The Zloty Index by Cinkciarz.pl. August 2015. Part 2

4 Aug 2015 10:17

The Zloty Index by Cinkciarz.pl. August 2015. Part 1

3 Aug 2015 17:20

Afternoon analysis 03.07.2015

3 Aug 2015 13:00

Daily analysis 03.08.2015

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