CZK stays constructive in the longer run – Rabobank

FX Strategist at Rabobank Piotr Matys assessed the prospects for the Czech Koruna in the next months.

Key Quotes

“CZK bulls are facing a “catch 22” situation: the hawkish bias adopted by the CNB last year, when the policy rate was raised by 45bps in total, has been a major driving factor for the CZK”.

“The rapid pace of CZK’s appreciation is, however, disinflationary. Inflation decelerated sharply from 2.6% y/y in Dec to 1.7% y/y in Mar. Initially the CNB anticipated prices to remain above its official 2% target throughout 2018. Essentially, the 25bps hike in Jan could prove the only move this year”.

“A prolonged pause in the tightening cycle would keep EUR/CZK above the 25 level. Rising trade tensions between the US and the EU are a major risk factor for the Czech open economy”.