Currency Forecast - PLN: Technicals And Fundamentals Supporting Rebound - 21 AUG 2017


BMI View : The Polish zloty (PLN) will receive tailwinds from a widening real interest rate differential over the eurozone in the short term, following some downside pressures in mid-2017. In the long term, Poland ' s strong GDP growth trajectory and high real interest rate s wil l further support the currency resulting in further gains , particularly in total return terms .

Short- Term Outlook (three-to-six months)

Following a strong start into 2017, the Polish zloty (PLN) has come up against headwinds in recent weeks. Rising political uncertainty in Poland due to the ruling nationalist Law and Justice (PiS) party's attempt to obtain sweeping powers over the constitutional court triggered the PLN to sell-off. However, we believe that further losses will be limited as the risk is adequately priced in, which will prevent the zloty from slipping beyond short-term support at PLN4.30/EUR. This is highlighted in Poland's 5-year CDS spread over Germany, which remains at its long-term support level, suggesting that the perceptions of default risk are low.

Downside Risks Largely Priced In
PLN/EUR Exchange Rate (Weekly)
Source: Bloomberg, BMI

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