EUR-HUF reverses decline despite better trade data as foreigners sell assets

EUR-HUF has come under upside pressure again now that a September Fed rate hike is being definitively priced in by EM assets, HUF has been an outperformer within CEE in recent weeks, but at an absolute level, EUR-HUF has risen from 307 at the end of last month to 311-plus now, not far from our year-end target of 315.00. 

This is despite upbeat current-account data from Hungary. Yesterday's June trade data featured strong 13.4% y/y growth in exports and an 80% y/y widening of the trade surplus, car exports have been performing especially well this H1, and there has been hefty EU fund inflow, these factors have been HUF supportive during patches.

"EU fund inflow is set to pick up in coming months if the government manages to settle a dispute with the EC to unlock a part of the 'frozen' EUR 700mn of project funds", says Commerzbank.

Nevertheless, supportive factors are being outweighed by asset allocation decisions ahead of Fed tightening, portfolio outflow from CEE is ongoing - NBH data show that non-residents sold another HUF 279bn of Hungarian government bonds in June, the fifth month of net outflow in a row, with cumulative net sales reaching HUF 1.2trn this year; the share of non-residents in government debt ownership has dropped from above-50% a quarter ago to 47.5% now.

"Although Hungary's sizeable current-account surplus distinguishes it from the fragile five countries - we do not foresee the same degree of stress for the HUF when the Fed tightens - EUR-HUF is seen rising steadily in coming months, reaching 315.00 by Q4", added Commerzbank.