Złoty with an important challenge after March. Will the strength of the Polish currency continue?

It seems that from a macroeconomic point of view, the strengthening of the Polish zloty was supported by two main factors. The first of them, which could be observed in the first half of last year, was a significant decline in the prices of energy raw materials, which had a significant impact on our country's trade balance, which was improving. With cheaper raw materials, fewer euros or dollars had to be bought to pay for them, and at the same time, Polish exports were booming, so more foreign currency was exchanged for the zloty.

The second key factor helping the Polish currency was probably a sharp decline in inflation, which significantly raised real interest rates in Poland. If the market consensus is right and inflation for March will be 2,3%, which will mean the real rate at the level of 3,45%. This is the highest level since February 2015. However, later in the year, inflation may trend towards 5-6% in December 2024 on an annual basis. This, in turn, would mean a drop in real rates to around 0%.

Will the zloty withstand the decline in real rates and rising commodity prices?

The question arises: wasn't March the last month when the zloty remained strong? It is from March that the two factors mentioned above cease to apply and may start to work against the zloty. From this perspective, the key level for the EUR/PLN exchange rate seems to be around 4,32. If this level is broken, we can then pay attention to the areas of 4,35 and 4,39. In relation to the dollar, the key level may be around 4,06, to which the USD/PLN rate could strive if the combination of the above events begins to disturb the zloty.

One of the most interesting currencies in the above context seems to be the Swiss franc. According to SNB inflation was no longer a problem, so interest rates could be cut. With high real rates in Poland, the CHF/PLN exchange rate has fallen to the lowest level since June 2022. However, if there is no longer inflationary pressure in Switzerland and it may re-emerge in Poland, the exchange rate may decline in proportion to the inflation difference in two countries. Therefore, later in the year it would not be a surprise if the CHF/PLN quotations were heading towards PLN 4,70. Therefore, it seems that there is a period ahead of us when we will test the strength of the zloty due to the combination of at least two unfavorable macroeconomic factors.