Research (Conseq)
Currencies  |  November 07, 2012 14:57:04

The development of the koruna and view other months


Exchange rate of the Czech crown since about mid-September to weaken against the euro and against the U.S. dollar. August strengthen drawn interest of foreign investors in the assets of the Central European region abruptly cut off the Czech National Bank. Governor Singer comments that another real tool of monetary policy to help the sluggish economy, the reduction of interest rates intervened in the direction of a weaker exchange rate fell, it seems, on fertile soil. Two cuts in interest rates by a cumulative 45 basis points on a de facto zero crown finally plunged into disfavor investors.Czech currency and the euro moved from a level of around 24.30 almost the entire crown above (4% loss), in parity with the USD weakening exceeded 6.5% (at 19.75 CZK / USD) due to generally rising American dollar.

In the near future you can not find too much factors that would able to reverse current trends. Domestic economic activity remains in stagnation or even contraction, which is demonstrated by the recent data of retail sales and industrial production. 's Foreign trade remains the sole driver of domestic economy, but declining in both the dynamics of imports and exports, unfortunately due to a drop in demand in the euro area, led by Germany.As far as possible CNB foreign exchange interventions, we do not believe that the central bank is the current weaker levels considered. Come as a real threat in our view, at a rate close to the border 24 CZK / EUR.

Short-term exchange rate is so likely sentenced to a further slight weakening as real seems to us to rise limit of 26 CZK / EUR. Should also continue to trend towards significant losses against the U.S. dollar, because we expect further strengthening of USD against the single European currency (both in the short and medium term), to which the Czech crown thanks to trade links primarily bound. In the longer term we expect along with the gradual recovery of the domestic economy turn to repeated slight strengthening of the crown thanks to a series of favorable macroeconomic indicators in the head with low debt andstructure and favorable trends in the balance of payments.

 

Ondřej Matuska,

Portfolio Manager

Conseq Investment Management, Inc.

 

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