Currencies: CZK extends losses as CNB keeps its dovish stance
Fixed Income: Czech swap rates continue to diverge from the euro curve
The Czech koruna slightly weakened to 24.45 EUR/CZK and continues to stay in a defensive mode as expected.
The dovish stance of the CNB board was yesterday re-affirmed by Lubomir Lizal. So, we continue to bet on short term weakness of the Czech koruna. The interest rate differential has never been such a strong factor for EUR/CZK (in compare with EUR/USD), but at current from a fundamental point of view high levels, the negative development of the differential could continue to weigh on the Czech currency. Next short term target is the 200- day moving average currently at 24.55 EUR/CZK.
The above mentioned dovish stance of the CNB will probably support the current trend in the Czech fixed-income market, which is characterized by falling rates and yields across the board. Interestingly, it also means that the differential between euro swap rates and CZK swap rates will continue to widen (currently 10Y euro swap rate is already 35 bps above the corresponding CZK rate).
Currencieschange EUR/CZK24.470.1% EUR/HUF267.5-0.2% EUR/PLN3.916-0.4% USD/PLN2.763-0.5% EUR/USD1.4270.7% USD/JPY81.2-0.4%
Bonds 2Ychange Czech Rep.1.58-0.01 Hungary 3Y6.66-0.01 Poland5.06-0.06 Slovakia2.610.01 Eurozone1.820.00 USA0.53-0.01
Bonds 10Ychange Czech Rep.3.79-0.03 Hungary7.320.01 Poland6.06-0.02 Eurozone3.130.00 USA3.13-0.03
Forint stable after wage data confirms lack of inflationary pressures
The Hungarian forint remained stable at the 267.50-268.50 range as risk aversion was slightly muted after days of risk selling. It seems that the weaker dollar and somewhat better sentiment on equity markets helped the forint to receive some new interest from investors or at least keep sellers away from the market.
March wage data was in line with expectations and wages lowered by 1.4% Y/Y, while ex-bonus private sector wages grew by 4.3% Y/Y. Overall, these figures are compatible with the 3% inflation target, thus the central bank’s goal to achieve it in 2012 is not endangered by this.
The Polish zloty remained stuck to the 3.93 EUR/PLN level on Tuesday.
Today, figures on employment and average gross wages for April will be released. Regarding the latter, markets expect about 5% growth on a year-on-year (YoY) basis. Nevertheless, bearing in mind that the inflation rose by 4.5% YoY in April, one can easily see that real wages are more or less unchanged. Hence, high unemployment still prevents unions to negotiate higher wages and secondary effects of higher commodity prices remain largely mitigated.
As far as the zloty’s trading is concerned, we believe that the EUR/PLN currency pair might remain close to current levels. Poland’s FinMin interventions and unexpectedly high interest rates should keep the zloty below moving averages in the sessions ahead (50 days average is seen at 3.98 EUR/PLN, 200 days average is seen at 3.96 EUR/PLN).
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