Zloty, Star of Europe, Seen Getting Better at Morgan Stanley

  • Polish currency boosted by French election, strong economy
  • Morgan Stanley sees zloty at 4.10 per euro within months

The zloty, Europe’s best-performing currency this year, may go from strength to strength as accelerating growth in Poland is likely to shift the central bank’s rhetoric, analysts say.

The zloty rose as much as 0.6 percent on Monday to 4.188 per euro, taking the increase for the year toward 5 percent, the most in Europe. The currency also leads regional gains in 2017 against the dollar, at 9 percent. Morgan Stanley and ING Bank Slaski SA see the rally continuing, as the country’s economic growth is expected to pick up to 3.4 percent this year from 2.7 percent in 2016.

“We continue to see good demand for zloty,” Morgan Stanley strategists including Hans Redeker said in a client note. “The victory of Macron in the French presidential election will not come as a surprise to markets, but is still positive for regional EM assets at the margin. We maintain a neutral view on EM currencies for the near term, but expect zloty to outperform.”

The central bank has kept its key interest rate at a record low of 1.5 percent for over two years, yet there is little indication the Polish economy is going to slow any time soon, said Morgan Stanley, which is targeting a zloty level of 4.10 per euro in coming months.

  • Credit Agricole SA strategists led by Jakub Borowski say the French election result will contribute this week toward the strengthening of the zloty and Polish bonds, though the effect may be limited as market reaction was mostly priced in; the next event to watch is the Moody’s review, due on Friday, with the agency expected to leave Poland at A2
  • Raiffeisen Bank Polska SA analyst Wojciech Stepien sees 4.1840 as the next technical support level for EUR/PLN, with any corrective rebound capped at 4.21
  • ING Bank Slaski SA analysts led by Rafal Benecki expect EUR/PLN to test support at 4.17, with an expected rise in EUR/USD to help the zloty in the long term. ING sees the zloty at 4.15-4.20/EUR at year-end
  • According to mBank SA analysts led by Ernest Pytlarczyk, economic factors -- especially growth -- take center stage, which should be positive for the zloty in the mid-term, with the currency seen benefiting from good sentiment toward local assets this week
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