The zloty leapt almost 1 % against the euro yesterday and Warsaw shares rallied 2 % after Poland avoided a ratings downgrade by Moody’s, whilst broader emerging stocks edged up from one-month lows.
The zloty had been languishing near 2-1/2 month lows on fears that Moody’s would follow Standard and Poor’s in cutting Poland’s credit rating but the agency confirmed the rating, though it cut the outlook on it to negative.
It rose to two-week highs around 4.37 per euro while Polish local debt prices rallied across the curve, with five-year yields hitting five-week lows
“It’s a relief rally,” said Luis Costa, head of CEEMEA debt and FX strategy at Citi.“Again we are seeing rating agencies showing a big distortion in how they see credit risk.”
He reckons the rebound in the zloty could go a bit further to around 4.3 per euro because of a build-up in short zloty positions ahead of the ratings review.
Ratings fears weighed on South African markets however, with the rand losing 0.6 % against the dollar to touch new two-month lows, after slipping almost 2.5 % on Friday.
A Standard & Poor’s executive had expressed concerns about South Africa’s dismal growth and reliance on capital flows, whilst the deputy central bank governor said the economy was “flat on its back”.
On Monday the central bank warned that a ratings downgrade would hit the currency hard.
S&P rates the country’s debt just one level above sub-investment grade, with a negative outlook and a review coming up in June.
Emerging equities overall hovered just off one-month lows hit earlier in the session after Chinese data on the weekend showed investment, factory and retail sales all expanded more slowly than expected in April.
However, Chinese mainland shares and Hong Kong stocks rose around 0.8 %, after the securities regulator denied reports it was cracking down on fundraising and M&A in certain sectors.
In emerging Europe, Russian dollar-denominated shares jumped 1.3 % after oil prices rose almost 2 % to over $48 a barrel.
The rouble also rose 0.9 % against the dollar.
Nigeria’s naira slipped to its weakest level in months against the dollar in the non-deliverable forward (NDF) market as expectations mounted of an imminent currency devaluation.
“The pressure is definitely there.
There are hints that the top of the government is thinking seriously about letting the dollar naira revise higher,” said Citi’s Costa.
“Essentially there is a balance of payments crisis here and unless oil goes to $80 a barrel it will be difficult to avoid (a change in the currency regime).”
However, the central bank has denied reports of devaluation plan in exchange for IMF funds to help offset a slump in oil revenues.
The IMF said no request for funds had been made.
Unions have called for a strike unless the government reverses a plan to increase petrol prices.