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Daily analysis 13.03.2015

13 Mar 2015 12:51|Marcin Lipka

The market stabilises before a crucial decision of Federal Reserve on upcoming Wednesday. Decision of Central Bank of Russia concerning interest rates. The participants of zloty market foresee more hawkish Fed? Comments of professor Osiatyński from MPC are fitted to the situation.

Most important macro data (CET). Estimations of macro data are based on Bloomberg's information, unless marked otherwise.

  • 14.00 CET: Consumers' inflation from Poland (estimations: minus 1.3% y/y).
  • 15.00 CET: University of Michigan index of consumers' sentiments (szacunki: 95.5).


The currency market is slowly entering the period of awaiting, before Wednesday's decision of Federal Reserve. Investors are wondering, will Fed decide to pay attention on negative effects of American dollar's enforcement, and extend the perspective of zero interest rates, or according to previous declarations, resign from the “patience” word, and with it suggest the possibility of tightening the monetary policy already in June.

This second solution is more probable. FOMC members were preparing for this movement for many months, and the main macroeconomic data justify this change of approach. Additionally, it is worthy to remind the statements of representatives of Open Market Committee, who share Janet Yellen's views, and also have a right to vote this year.

In the beginning of March, while in Honolulu John Williams stated, that the middle of the year is a good moment for starting a discussion concerning the increase of interest rates. However it is worth to notice, that this discussion could not begin, if Fed will leave “patience” in March communicate.

On the other hand, in his interview for “The Wall Street Journal” at the end of February, Dennis Lockhart said that the summits should be open for increases of interest rates from June. It clearly shows that Fed should resign from “patience” in March, suggesting that at least for two upcoming summits, the rates will remain on unchanged.

Of course, theoretically the market should discount these information a long time ago. However the recent behaviour of the investors denies the previous inclusion of very probable events in the prices. It can mean that the market is more and more shaped by the flows of long term capital, and not only speculation games. However, this only increases the probability of further appreciation of American dollar on Wednesday evening.

Russia cuts the interest rates

On today's summit Central Bank of Russia (CBR) decreased the basic money rate from 15% to 14%. This decision was expected by the economists, although some of them thought, that the soothing can be even deeper, and will amount 200 basis points. Rouble has actually not reacted on this decision, and USD/RUB pair is recorded in range of 61.

Official CBR communicate is pessimistic. This year the economy is supposed to shrink by approximately 3.5-4.0%, and the inflation will fall down to the level of 9% not earlier than in March 2016 (currently it amounts 16.7%). According to Russian monetary authorities, the increase of prices is caused by rouble's wear off, and restrictions in trade circulation.

CBR also underlines, that the low price of oil and Russian companies' lack of access to foreign capital, will also impact the economy negatively. Additionally, the companies' investments will drop, their financial status will deteriorate, and high economic uncertainty will also act negatively on them.

Actually it is difficult to add something to the comments of monetary authorities from Moscow. When it comes to rouble, CBR has not taken any position yet, and if Brent oil will remain close to its current levels, and the situation in the East will deteriorate, the Russian currency will probably remain stable in relation to the dollar. Especially that central bank is not ready for a fast easing of monetary policy, and identifies the economic dangers correctly.

Few words about the foreign market

We still think, that Wednesday summit of Federal Reserve will be relatively hawkish, and the committee will remove the “patience” statement. This should open the door for increasing the interest rates in June. If this message will not be “softened” with anxieties of strong dollar's effects (at least on the press conference), we should observe new minimums on EUR/USD.

Osiatyński's comments are negative for zloty

After interviews with Anną Zielińska-Głębocka, and also Elżbieta Chojną-Duch, one could get the impression that the whole Council supports the standpoint of leaving interest rates on unchanged level until the end of 2015. However in today's interview for Bloomberg, professor Osiatyński introduced some uncertainty in the camp, which was foreseeing zloty's appreciation.

This doveish representative of MPC said: “it is obvious, that changes of zloty's value related with the market's condition, can make the Council change their approach in monetary policy”. What Osiatyński means by that, is mainly the possibility of PLN appreciation in relation to euro, related with income of capital which is searching for positive return rates, after introducing QE in Euro Zone.

However there is a question, what level should EUR/PLN reach, so MPC would want to decrease interest rates, in order to prevent the capital's inflow. According to us, EUR/PLN would have to drop to the areas of at least 3.90-4.00, so that this matter would start dominating again in considerations of the whole Council, and not only its most doveish wing, which is represented by professor Osiatyński.

Zloty did not wore off in relation to euro only because of Osiatyński's comments. It was also caused by increasingly wider belief, that Federal Reserve will be hawkish next week. It may not only move the records of USD/PLN in the areas of 3.95-4.00, but also cause a change of EUR/PLN records range in the areas of 4.15-4.18, and CHF/PLN above 3.90. However, appreciation should be short term in case of two latter pairs. The basis scenario is still their drop down to, respectively 4.10 and 3.82-3.83 by the end of current quarter.

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

Range EUR/USD 1.0650-1.0750 1.0450-1.0550 1.0550-1.0650
Range EUR/PLN 4.1400-4.1800 4.1400-4.1800 4.1400-4.1800
Range USD/PLN 3.8800-3.9200 3.9200-3.9600 3.8400-3.8800
Range CHF/PLN 3.8900-3.9300 3.8900-3.9300 3.8900-3.9300

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

Range GBP/USD 1.4850-1.4950 1.4750-1.4850 1.4950-1.5050
Range GBP/PLN 5.8400-5.8800 5.8200-5.8600 5.8600-5.9000

13 Mar 2015 12:51|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.

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