Weak dollar protects zloty (Afternoon analysis 19.11.2018)

Positive wage data from Poland and a globally weaker dollar reduce the zloty's sales pressure. However, the current problems that the Polish currency is facing are becoming more visible. The zloty versus the euro has been the weakest since the beginning of November, and in comparison with the forint, since July 8th.

Dollar and zloty incur some losses

The new week did not start well for the zloty. Its clear weakening (caused by internal factors) contributed to an increase in the EUR/PLN quotations above 4.33 in the afternoon, and CHF/PLN above 3.80, to the highest levels since November 1st. Losses on the pound and dollar were smaller, which, however, resulted from the globally weaker condition of these currencies.

Since Friday afternoon, after an interview with the vice-president of the Federal Reserve, the dollar has been noticeably weaker, suggesting a slightly milder approach to monetary policy than it was thought. The EUR/USD quotations remained above 1.14 today, the highest rate in 11 days.

Today, the Polish Central Statistical Office (GUS) presented data on average wages in the industry sector. It increased in October by 7.6% per year, by 0.9 percentage points above the market expectations. This is the upper limit of the growth of nearly the last 7 years (only in April the growth was higher and amounted to 7.8%).

The two factors mentioned above should support the zloty. The fact that the Polish currency is still clearly losing is a sign of its internal weakness. In relation to the forint, the zloty is the cheapest in 4 months. The zloty could have been under much greater pressure if the dollar had not weakened. The arguments for the US currency's appreciation, at least in the short term, have expired somewhat, which should be favourable for the zloty.

The possible return of the dollar to the growth path, resulting, for example, from a worsening sentiment in the eurozone (e.g. Italy, Brexit or fears about the GDP growth pace) or hawkish comments from the Federal Reserve, could complicate the zloty situation even more. The probability of significant changes is still limited today. The calendar of scheduled important macroeconomic events is empty. The zloty should oscillate around current levels until the end of the day, if we do not observe more pronounced changes in the dollar valuation (and the EUR/USD exchange rate).

Tomorrow's preview

At 10:00 a.m., GUS will publish data on industrial production and producer inflation in October. The zloty is currently under pressure from domestic events and today's better than expected data on average wages did not help much. Tomorrow's GUS publication may, therefore, have a limited impact on the zloty's quotations, although better than consensus data (above 6.7% y/y) may suggest a slightly higher GDP growth pace in the current (fourth) quarter, which after better than expected data for the previous quarter may protect the zloty against a rapid weakening.