Forint down on interbank market

MNB

The forint was trading at 309.26 to the euro late Tuesday on the interbank forex market, down from final quotes at 307.47 on Monday. At 307.36 to the euro early Tuesday, the forint moved between 306.93 and 309.30, a four-day low, after a more than two-month high at 306.46 late Monday. 

While the euro corrected slightly up versus the dollar after two days of falls, the Hungarian currency fell back from a multi-month high on Monday, and generally eased for a second day, mainly due to continuing pressure from the dollar, because expectations for a September Fed rate hike apparently did not budge in view of light US data recently, and fresh figures on Tuesday on US manufacturing orders rising in June even added to the rate hike gloom.

A US rate rise could make higher yielding emerging market assets less attractive. Analysts say the looming US tightening cycle has not yet been priced in on the Hungarian fixed income markets, and doubt whether the Hungarian central bankʼs self-financing tools can offset any sudden withdrawal of foreign investors while non-resident government bond holdings remain massive despite falling by 16% from April to July.

Aired on Tuesday, a plan of Hungaryʼs government to repay early at least EUR 1.2 bln of its forex debt this year from forint bond issue receipts also weighed on the forint.

Hungaryʼs large external surplus -- the current and capital account surplus -- is nearly 9% of GDP, providing strong support for the forint, Citigroup said in a note on Tuesday. The latest drop in energy prices suggests that energy imports may continue to decline, a booster for the trade surplus, Citi said. But the downside risk is that the large surplus will also help the central bank keep interest rates on hold at the current record low 1.35% until at least the second half of 2016 despite an expected rebound in headline inflation to around 2.5% by December this year, Citi added.

And trade balance grew recently on falling imports rather than growing exports. Annual export growth slowed sharply according to latest data, while monthly imports fall outpaced exports drop.

The forint traded at 282.02 to the dollar, down from 280.78 in final quotes on Monday. On Tuesday, it moved between 280.10 and 282.33, a four-day low, after a three-week high at 277.00 late last Friday.

It was quoted at 289.85 to the Swiss franc, slightly down from 289.72 late Monday. Its range on Tuesday was 289.31 to 290.63, after a three-month high at 288.29 last Thursday intraday. Since its crash to an all-time low at 378.49 on January 15 when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26.


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