Zloty Gains Most in April as Deutsche Bank Says It's Undervalued

  • Polish finance ministry says watching currency `swings'
  • Currency most undervalued after rand, Deutsche Bank says

Poland’s zloty gained the most in the world after Deutsche Bank AG recommended clients “go long” in the currency and a finance ministry official said the government is watching swings in the market.

The zloty rose as much as 0.9 percent to 4.3694 per euro in Warsaw after Deutsche Bank said the currency is the second-most undervalued in the world after the rand, while Deputy Finance Minister Piotr Nowak was cited by PAP Newswire as saying the government doesn’t exclude exchanging “foreign currency funds at adequate levels.”

The zloty has fallen 2.8 percent this month, the most in emerging markets against the euro. Investors are speculating Moody’s Investors Service on May 13 may become the second ratings company to downgrade Poland’s investment-grade credit score this year in response to plans by the government to increase spending on social programs and questions about its commitment to independent media.

“We are witnessing a technical correction after recent zloty declines, perhaps Nowak’s comment added momentum to such a move,” said Piotr Matys, a currency strategist at Rabobank in London. “But I expect the negative stance toward the zloty will continue as long as the government conducts policies that may hurt investors.”

Hungarian Easing

Poland’s Finance Ministry has in the past stepped into the currency market to sell foreign currencies obtained from European Union funds or bond sales to curb zloty weakening. Finance Minister Pawel Szalamacha said in an interview in Washington on April 14 that the government has no plans to intervene. Nowak didn’t reply to calls from Bloomberg seeking additional comment about his remarks on Tuesday.

The zloty also became more attractive for investors when the National Bank of Hungary on Tuesday lowered the benchmark three-month deposit rate to a record 1.05 percent from 1.20 percent, said Piotr Bartkiewicz, a Warsaw-based economist at MBank SA. Poland’s comparable benchmark rate is 1.5 percent.

In addition to the Moody’s report, the recent retreat in the zloty has also been fueled by uncertainties about a government plan to convert foreign-exchange mortgages into local currency and the redemption of 12 billion zloty ($3.1 million) of five-year government bonds on April 25.

‘Attractive Levels’

The zloty rebounded after falling below its 200-day moving average this week, sending its RSI to what some investors consider to be oversold levels.

Local-currency debt advanced for the first time in four days on Tuesday, with the yield on 10-year bonds falling 1 basis point to 3.09 percent. The currency traded up 0.7 percent as of 6 p.m. in Warsaw to 4.3770 per euro, heading for the biggest one-day jump since March 11.

“We view the current position squeeze as providing attractive levels to go long on the zloty,” Deutsche Bank’s London-based strategist Gautam Kalani said on Tuesday in an e-mailed note. The bank targets the zloty at 4.27 per euro, arguing that the plan for converting foreign loans to zloty shouldn’t be “very negative.” 

A potential Moody’s downgrade wouldn’t be a negative surprise for investors, as it follows a similar cut by Standard & Poor’s in January, Deutsche Bank said in the report.

Moody’s rates Poland A2 with a stable outlook, while S&P cut its rating to BBB+, the third-lowest investment-grade ranking. The zloty fell the most in four years after S&P’s action.

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