Daily analysis 11.08.2016

The British currency remains under pressure after another set of weak data from the UK. The NZD is still fairly strong despite a fairly dovish message from the RBNZ. The zloty is slightly weaker in comparison to Wednesday’s trading.

Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.

• 14.30: Weekly jobless claims from the US (survey: 265 k)

Further pound weakness

The pound’s value to the basket of trade-weighed currencies is close to multi-year lows. The EUR/GBP is close to 3-year highs and the GBP/USD is approximately 1% above its 30-year lows. It shows that the sterling is weak or extremely weak.

The element which increased the selling pressure on the pound was a real estate report. According to the RICS, the price growth is the weakest in 3 years and the sales index shows the fastest drop in transactions since 2008.

Overall, however, the report does not include only bad news. The RICS also writes that the indicators which describe the market activity in a 12-month period “rebound” is what suggests that the sentiment is more resilient than expected. Tomorrow, important data might come from the construction sector, but the market is probably getting ready for next week’s readings - especially retail sales for July.

Still, the market is also positioned on survey data, which usually shows the direction of the macro data move rather than its time-frame or range. This is the reason why the market participants would be much more focused on hard data (retail sales) than on more survey based reports.

The RBNZ message

Reading the message from the New Zealand central bank (RBNZ), it is hard to find elements which show a less dovish message than previously. The RBNZ notes that low interest rates abroad create the upside pressure for the NZD. The higher currency also creates a low price environment for the imported goods. The RBNZ claims that a lower value of currency is needed.

Additionally, besides the 25 bps cut to 2% the RBNZ suggests that more easing is needed. As a result, it may be surprising that the NZD is not significantly lower than yesterday. Actually, it soared to a one-year high just after the announcement from the central bank.

Overall, however, the moves are not totally astonishing. In yesterday’s afternoon analysis, we noted the RBNZ dilemmas concerning the booming real estate market, which would be even more disturbed if the MPC decided to deeper cuts.

The market is also aware that the RBNZ is not very eager to loosen the monetary policy aggressively, and assets denominated in the local currency may still bring solid returns - especially in comparison to fixed income instruments in economies where the interest rates are at negative levels. Additionally, a fairly high NZD valuation is supported by a fairly weak dollar and a slim chance that the Fed will raise interest rates in the following months.

Finally, the NZD perspectives may remain fairly favourable until the RNBZ starts to loosen the policy aggressively or if the Fed suggests the moment to hike the benchmark.

Slightly weaker zloty

Despite a slight zloty depreciation, both the dollar and the franc situation on Polish currency remains fairly stable. The global capital flow, which support the large part of EM currencies is also positive from the PLN and should at least support it at the current level.

The pound remains weak to the zloty. Today, the GBP/PLN pair recorded the lowest level since January 2014 at 4.95. We still expected that in both the long and medium run, the pound perspective remains negative, mainly due to a large external imbalance which is caused by a current account deficit of 7% of the GDP. In the short term, however, the odds for a slight rebound are rising, especially if the retail sales that are scheduled for the next week show better than expected consumption.