Daily analysis 15.05.2017

The dollar has been fairly weak after Friday’s inflation data. Testimonies from ECB members. The decision from OPEC regarding the extension of the production limit, has supported some of the raw material currencies. The zloty has been stable after the decision from Moody’s.

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

• 14.00: Poland’s payment balance. Current account (estimates: negative 354 million euros). The foreign trade balance (estimates: negative 110 million euros).
• 14.00: Baseline inflation from Poland (estimates: 0.7% YOY).

Weaker dollar

The dollar has been clearly weak compared to Friday’s opening. This is surprising, because, taking the revisions into consideration, the previous macroeconomic data from the USA was not weak at all. However, the market has clearly focused on the inflation data for March, which was worse than expected (1.9% YOY vs 2.0% YOY). Nevertheless, judging from the other data the Federal Reserve will most likely stick to the current rate hikes path, which includes four hikes in 2018 (0.25 percentage points each).

The EUR/USD’s return above the 1.0900 level might have also been stimulated by increasing expectations regarding the ECB abandoning their ultra mild monetary policy. Even though the chances for a surprising announcement from the ECB are fairly minor, the testimonies from its representatives which were planned for this week (Nowotny’s testimony on Tuesday in particular) may contain some statements about a conditional scenario of a less stimulative monetary policy. Therefore, this may support the euro in the forthcoming hours.

Extended production limit

Last night, the ministers of energy of Russia and Saudi Arabia announced that their countries are in favor of extending the oil production limit agreement until the end of the first quarter of 2018. This information was announced during their mutual press conference, which was broadcast by Bloomberg.

This has caused fairly strong increases in the oil quotations. Brent oil has reached the area of 52 dollars per barrel, which is approximately 2.5% more than on Friday. This was a surprise for the market, because the official OPEC meeting is planned for the 25th of May. It seems that both OPEC and Russia are quite determined to reduce a surplus of global oil supplies, even if this would mean resigning from their shares in the market.

It’s also worth noting that the previous speculations only regarded extending the limit until the end of 2017. The new decision means that the supply deficit will move to the beginning of next year. This should keep the oil prices in the upper areas of the volatility range and reduce the chances of Brent oil going below 50 USD per barrel.

This information was very positive for the raw material currencies. The USD/CAD went approximately 100 pips below its level from the trade opening in Asia, which means that the Canadian currency is approximately 0.7% stronger against the American dollar. The rouble’s index gained more than 1%. Higher raw material prices should also increase inflation. However, this effect will not be extremely strong, for the time being.

Neutral perspective from Moody’s

Moody’s left Poland’s rating unchanged and increased its perspective from negative to neutral. However, this information generated a minor reaction from the zloty. The EUR/PLN below 4.21 is more likely a result of the general sentiment towards the emerging market currencies. The PLN/HUF has been quite stable at the level of approximately 73.50. This is the same level as before the decision from Moody’s.

However, this decision may be positive for the zloty in the long-term and reduce its vulnerability to external dangers. Today, we will receive data regarding Poland’s payment balance. Friday’s data from the Polish Central Statistical Office showed a slight improvement in both import and export in the first quarter (12.3% YOY and 9.2% YOY respectively). The NBP data may even show that import for March went above 18 billion euros. A higher than expected increase in baseline inflation (estimates: 0.7%) would have sustained the positive sentiment towards the PLN and may be discussed during the MPC conference on Wednesday.