Forint eases versus dollar on interbank market

The Hungarian currency was stung by the regular Tuesday auction of three-month Treasury bills which saw rising demand and an allotment worth HUF 44 bln instead of the HUF 40 bln offered, but yields jumped to 1.13%, the highest since last June, from 0.82 a week ago, and also 19 bps above the secondary market benchmark.

Auction yields of all tenor have been rising lately, and the trend accelerated in the first two days of this year, as domestic banks invest surpluses that were held back by narrow offer of government bonds late last year.

Offers have been limited earlier in line with government efforts to push public debt down to a level compatible with EU rules by the year-end cut-off date. But now Hungaryʼs government seems to be in dire need of money, analysts say.

If yields continue to rise despite rising local demand as banks mercilessly profit from the governmentʼs predicament, foreign investors might also be lured back after they have but deserted the Hungarian debt market since autumn in view of yields falling too low to their liking. Their return could support the forint later, bit it is apparently not the case as yet, analysts add.

However, after falling versus the euro as well until late afternoon, the euroʼs loss to the dollar outpaced that of the forint which thus firmed in euro terms. The euroʼs fall against the dollar accelerated after dismal December euro zone inflation figures rekindled hopes for further ECB action in March. But the forint continued to sink against the dollar.

Meanwhile, Hungaryʼs strong official general government balance figures out on Tuesday helped limit the forintʼs slide.

Hungaryʼs government as well as its central bank, would like to see a weaker forint, Nomura said in a note on Tuesday. This is especially so given the current, persistently low oil and import

commodity price growth environment, to further boost the contribution of net trade to GDP, the house said. This is likely to mean that Hungary will further use domestic government debt issuance to

repay foreign-currency debt in 2016. Nomura sees the forint at 325 to the euro for end-2016 with risks skewed to the downside.

Also on Tuesday, Raiffeisen reminded investors of the easing bias of Hungaryʼs central bank.

The forint traded at 292.31 to the dollar, down from final quotes at 290.56 on Monday. On Tuesday, it moved between 290.12 and 293.46, a nearly five-week low. On November 27, it fell to a third more than fifteen-year low within a month at 295.76.

The forint was quoted at 289.29 to the Swiss franc, up from 289.95 late Monday. Its range on Tuesday was 289.22 to 291.06, after a five-day high at 289.14 Monday intraday, and a five-day low at 291.53 also on Monday earlier. Since its crash to an all-time low at 378.49 to the franc on January 15, 2015, when the Swiss central bank scrapped its cap of 1.20 to the euro, it reached the highest at 281.07 on February 26, 2015.