CEE currencies track the gains of the Polish zloty

Headlines

Currencies: CEE currencies track the gains of the Polish zloty
Fixed Income: Rate cut expectations continue to drive the downtrend in Polish yields

Currencies

Given the relatively weak performance of the Polish currency late last year, the zloty seems to have room gains in case of risk appetite and liquidity conditions continue to improve. The EUR/PLN edged lower on the back of stronger equities in this fashion yesterday. The pair shot lower by 15 figures to end the day testing bids in the 3.95 area. More downside for the pair seems likely in the short run now that the psychological and technical level of EUR/PLN 4.0 has been broken. This said EUR/PLN 3.90 seems well within reach as technical trading continues further out this week.

The Czech koruna took profit from renewed interest in CEE currencies that was most visible on the Polish FX market. The koruna tracked the gains of the zloty also thanks to further improvement in the global risk aversion, as measured by TED Spread and VIX. The pair quite surprisingly managed to break back below 26.00 EUR/CZK even despite the announcement another carmarker (Hyundai) plans to cut its output plans for this year. From a technical point of view this is a quite significant signal pointing to the possibility of further short-term gains of the Czech koruna. These can last as long as the global risk aversion development remains favorable.

The Hungarian forint was helped by the improving risk assessment of markets and stronger BRL and PLN lifted the forint, too. The pair appreciated roughly 1% to 265 during the day. The market could stay for a while here before next key levels of 262 and 260 come in the eyesight, but this may not affect the formulation of this new trend.

Fixed income

The Polish bonds curve continued to steepen in a bullish fashion on Tuesday, with the short end of the curve down by up to 10 bps and longer maturities trading flat. Rate cut expectations continue to drive the downtrend in bonds yields, particularly in the <2Y segment. With the next batch of soft economic data due out later this month and the zloty recovering from recent lows against the euro, we see no reason for the move not to be continued in the days and weeks to come. Today the 2Y primary tender will be the eye-catcher – a massive PLN 3.2-3.5 bn will be placed on offer, and if the auction goes well (as we expect it to), this should underpin the secondary market sentiment even further.

Czech yield curve in average trading volumes steepened yesterday. The short end of the curve lost up to 5 bps due to expected rate cut. The long end of the curve should be influenced later by December’s CPI released this Friday. No important domestic events are scheduled today. Current yields especially at the front end ahead of the December’s inflation may be interesting for investors again. However, lower risk aversion on global markets could support stock markets today and send up bond yields again.

Hungarian bond was hibernated yesterday as neither international nor local players showed any interest towards the fixed income market. The currency strength could therefore have some positive effect for the market today and if the forint remains on a positive trend, bonds may follow them closely.

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