Zloty and forint try to reverse their previous losses

Headlines

Currencies: Zloty and forint try to reverse their previous losses
Fixed Income: Unexpectedly low inflation support rate-cut expectations in Hungary

Czech Republic

The Czech koruna firmed slightly yesterday. Beside the ongoing bullish sentiment in global risky markets, the other reason for currency gains was the better-than-expected August C/A figures. The monthly deficit came at CZK 8.4bn level, supported not just by a lower import bill (cause by lower oil prices) but also by lower dividend outflows. We believe the 2009 C/A deficit should be visibly lower in 2009 (just above the 2 % of GDP) than in the previous year.
Today, the domestic calendar is empty so the koruna will completely focus on global markets and the US earnings season. Should profits of key multinationals surprise on the upside the koruna might extend its gains, but these should be limited because the threat of CNB forex interventions is still in the air

Hungary

The Hungarian forint recovered last week’s losses on Monday, as the global equity market sentiment turned more optimistic and the carry trade has become more popular again. The pair climbed back 1% to 267.50 from the 270.00 level.
Central bank’s proposal to tighten rules on retail lending got widespread criticism from banks, but the Governor yesterday held talks with the head of the banking association in order to convince them about the need for more regulation. The central bank proposed to introduce an income threshold and would also maximize the loan at 70% of the mortgage value. This would penalize foreign currency based loans over forint loans, which would help the country to establish a sustainable foreign currency debt path over the medium-term.
Today’s inflation data will be in the focus as the consensus expects a rise in inflation from 5.0% Y/Y to 5.3% Y/Y. It expected the same in the last two months, but the recession had a stronger effect and inflation was lower, so it will be interesting to see whether the consensus will be surprised again. At the time of writing the CPI was released showing an unexpected 0.1% M/M decline pushing the Y/Y rate to 4.9% from 5.2% previously. This gives the Hungarian Central Bank more leeway to ease its policy.

The Hungarian bond market recovered last week’s 10bps loss on Monday. The currency’s gain was behind the move as usual these days, but more important will be the inflation data today. Bonds are still trading at wide asset swap spreads, thus a positive inflation figure could give a lift to bond prices.

Poland

The Polish zloty reversed part of its previous losses yesterday as the EUR/PLN pair dipped from the 4.29 level to the 4.21 level. The only reason for zloty gains was the international environment, which has become more favourable, as equities extend their run and the threat of Latvia’s devaluation slowly fades away.
Today, the top domestic event will be the August C/A figures. Probably because of very positive readings in previous month the market expects a small surplus, which might be a too optimistic assumption. So, the market might be temporary disappointed, if the September figures show a deficit. On the other hand, it won’t be a tragedy, since the Polish C/A has been behaving quite well this year.

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