Zloty resists the global pressure (Daily analysis 30.08.2018)

Increases in the US trading markets no longer help to keep the sentiment on the emerging countries' currencies. More and more EM currencies are either reaching historic lows or significantly depreciating. The zloty in this context remains relatively stable and approaches the highest levels in relation to the Hungarian forint.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• A lack of macro data may noticeably impact the analyzed currency pairs.

USA does not help any more

Further records on the US market are not sufficient to support emerging market currencies. This is mainly the result of growing problems in many Latin American economies and pressure on countries with current account imbalances. Moreover, the growth of US government bond yields is another element, which on the one hand increases financing costs in EM and on the other hand attracts capital to the United States.

In August, the Turkish lira lost 25% and the Argentinian peso recorded almost a 20% depreciation against the dollar. The authorities in Buenos Aires had to ask the IMF to accelerate the release of the assistance tranches yesterday compared to the mid-year timetable (50 billion USD in total). Argentina clearly cannot cope with fiscal liabilities, unstable inflation (31.2% year-on-year in July) or much worse than expected condition of the economy (industrial output in June fell by 8.1% year-on-year).

In the passing month, more than 10% lost the South African rand as well. This currency has traditionally been sensitive to increases in risk aversion in emerging markets due to its large current account deficit (over 3% of GDP in the Q1 of 2018), its sensitivity to metal prices and its severe structural problems. Employment for the population aged 15-64 amounts to only 43.5% in South Africa, while the OECD average is 68.2%.

Brazil faces some other problems (serious political crisis, insufficient reforms, recent strike in the transport sector). The authorities of this largest Latin American country are also unable to cope with the budget deficit (about 7-8% of GDP) after the recent economic downturn (in 2015-2016). August's real depreciation amounts to 8.5%.

The Indian rupee, which may not depreciate so much (slightly more than 3%), is under pressure, but the local currency deepens its historical lows against the dollar on a daily basis. Therefore, more and more countries are under pressure (especially in Latin America - Brazil, Argentina, Venezuela), which increases the risk that the problems of individual countries will transform into a regional crisis threatening even the global economy. So far, this negative scenario is not the base one, but with the escalation of the trade war with China or Italy's major disputes with Brussels, a global increase in risk aversion in the coming months cannot be ruled out.

Zloty in good condition

The zloty's depreciation is visible in recent days, but it remains very limited. Therefore, the EUR/PLN increases to the range of 4.29-4.30 should be considered marginal. The zloty is also gaining in value against many EM currencies, including the forint, where it is very close to reaching the historical highs in relation to the Hungarian currency (today, the zloty cost more than 76.20 HUF, and the historical high was 76.70 a decade ago).

It is worth noting that if the pressure on emerging markets continues and the sentiment on the US trading market worsens (correction of the recent historically high levels), the zloty will not avoid a stronger depreciation despite its current relatively good condition. As a result, there seems to be a greater risk of weakening the Polish currency than a chance of its noticeable appreciation.