Market summary according to AFORTI: post-election landscape, expectations for the Polish zloty and high demand for bonds
Last week passed in the shadow of the upcoming parliamentary elections in Poland. As expected, the market defended itself against breaking the EUR/PLN level of 4.5000. Several attempts were unsuccessful, and after short moments when the zloty strengthened, the market escaped to slightly higher levels, valuing the zloty closer to 4.5400 for one Euro.
Waiting for the elections clearly balanced the balance of trade between importers and exporters. It should be emphasized, however, that the rates increased after the Monetary Policy Council/NBP decision turned out to be too high for the local currency market.
After the partial exit from Polish debt securities, foreign investors looked quite carefully at the situation on the currency market, and what was happening on the currency exchange was clearly controlled by Polish entrepreneurs.
The zloty was strengthening quite consistently and quite calmly, and the activity of exporters was conducive to achieving subsequent, lower and lower levels of support. As we assessed, reaching the range of 4.5000-4.5200 worked quite accurately. Even though the zloty entered this range and after a while fled north, it only gave a clear signal that testing the border at the level of 4.5000 is only a matter of time.
In our opinion, the issue of elections and the possibility of obtaining funds from the KPO will be crucial in the near future. The potential impact of a large amount of EUR on the local market may raise expectations that the zloty will reach lower levels - closer to 4.0000, but on the other hand it should be remembered that a large part of the funds may not be converted on the market, but may be used to settle direct payments in EUR . Our PLN/EUR valuation for the next week is 4.4500-4.4700.
With exchange rates still at such high levels, the Ministry of Finance tried to place bonds to cover the borrowing needs of the State Treasury. Investors took advantage by first purchasing bonds for approximately PLN 9 billion, and then the additional offer that appeared allowed another PLN 1.4 billion to be placed on the market. The total demand and submitted offers reached PLN 13.3 billion, which was a record allocation of funds for 10 years. Such borrowing needs mean that in 2024 we can talk about net debt - at the level of PLN 225 billion vs. approx. PLN 140 billion in 2023. Such an increase means that, in addition to repayment, we will have to deal with huge amounts related to debt servicing. Tuesday's issue reached levels of up to 5.50% on 5-year bonds and 5.15% on two-year bonds.
In our assessment of the situation on the markets, we obviously include Monday's reaction to the election results. The market assessed the potential change very enthusiastically and the zloty gained 8 groszy at first, creating the so-called "gap" in the charts. A correction towards 4.5000 was expected, but sales offers quickly appeared on the market and the zloty was gaining again. Despite high volatility on currency markets, in our opinion the zloty has the potential to strengthen - therefore the above-mentioned levels of 4.4500-4.4700 seem to be a rational compromise.
Looking at the dollar, we have a very similar weakening movement, where we observed the levels of 4.2400, with a local return to USD/PLN of 4.3000.
The dollar behaved quite predictably against the EUR - not breaking the strong support at 1.0450 and temporarily returning to the upper levels of 1.0600. At the moment, the level of 1.0550 seems quite stable, but it should be remembered that it is open in the Middle East, where the involvement of the US on one of the sides may significantly translate into issues on the situation on global currency exchange markets. All this is compounded by uncertainty about oil prices -because the conflict may spread to the entire region. As a result, fuel prices are becoming more expensive, which may translate into inflation issues. On the other hand, we are observing a growing interest in bullion as a safe haven in times of conflict. Gold is becoming significantly more expensive, which means that the sentiment to invest in stable and proven assets is returning. Let us also remember that changes in the dollar will show the condition of the American economy and how the US involvement in the next conflict is assessed.
Szymon Jańczak
Director of the Treasury Department
AFORTI Exchange S.A.