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Central European Daily

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Zloty strongly outperforms the koruna on carry trades

Thu, Apr 30 2009, 08:20 GMT
by KBC Market Research Desk

KBC Bank

Headlines

Currencies: Zloty strongly outperforms the koruna on carry trades
Fixed Income: NBP stays on hold, keeps easing bias

Poland

The Polish zloty posted strong nearly 2% gains on Wednesday. Beside lower riskaversion on the global markets, also the MPC decision could have played a role. The Polish Central Bank decided to keep rates unchanged for the first time since last November. Although it signaled further easing, this was clearly conditioned by lower volatility of the Polish zloty. Andrzej Wojtina, moderate MPC member, said that limiting the volatility of the zloty is a deep concern and that it was one of the reasons to stay on hold. On the other hand the markets shrugged off rather negative euro-talk. The Polish Prime minister said that he was not sure that Poland could join ERM-2 by June as initially planned.

The further development of the Polish zloty should depend on the battle of bulls and bears on the global equity markets. The bias of the Polish zloty is clearly positive in the mid term, but the shot term volatility can still be quite unpredictable.

Czech Republic

The Czech koruna ignored the regional rally and stayed nearly unchanged in the 26.70 EUR/CZK neighborhoods. The new, more pessimistic, forecast of the finance ministry pointing to the 2.3% drop in GDP this year, was not a big surprise, neither the initial draft of the budget for the next year counting with the deficit of around 150 bn. CZK. The regional story probably is still the same and it is very much about the carry trade on PLN/CZK. At the time of regional optimism the investment to the Polish zloty is financed from low yielding koruna, which therefore underperforms the region. On the other side, during the regional sell off, the koruna had enough ammunition to fight it as the foreign investors escape from carry trade positions.

Hence we see the near future less optimistic for the Czech koruna as we believe in the mid-term the region should strengthen.

Hungary

The Hungarian forint appreciated further yesterday and reached the two-week high of EUR/HUF 288.50 again. Positive global sentiment together with renewed appetite for HUF denominated assets helped the currency to see fresh inflow from abroad. This level however could be an important resistance level. If the currency passes on this as well, it may set a 3-month high.

The Hungarian bond market has been following the currency in general and AKK’s buyback auction is also lowering yields at the short-end. Double digit yield levels are still available, but market is getting close to the 10% level, so bond yields could reach the single-digit territory shortly.

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Published on  Thu, Apr 30 2009, 08:29 GMT