Canada Imposes 10% Tariff on Canned Vegetable Imports to Protect Domestic Industry 
Fed Chair Kevin Warsh Signals Policy Overhaul as Hawkish Rate Outlook Rattles Markets 
South Korea Signals Possible Interest Rate Hike as Inflation Remains Elevated 
100+ Global Companies Push Governments to Prioritize Electrification for Economic Growth 
Russia Stocks End Flat as MOEX Index Hits New 52-Week Low; Gold Falls and Oil Mixed 
Trump Says No Hormuz Strait Tolls During 60-Day Iran Ceasefire 
J.P. Morgan Sees Potential Vestas Guidance Upgrade Amid Strong Wind Energy Demand 
AI Memory Boom Sparks Global Chip Supply Crunch 
Oil Prices Fall as Iran Peace Talks Progress, Hormuz Reopens, and U.S. SPR Hits 1983 Low 
BOJ Signals More Rate Hikes as Inflation Risks Rise Amid Energy Price Pressures 
How Donald Trump has changed the way diplomacy is done 
Japan Inflation Stays Below BOJ Target Despite Rate Hike and Rising Energy Cost Risks 
Indonesia Central Bank to Draft New Regulations After Expanded Economic Growth Mandate 
Yen Near 40-Year Lows Despite BOJ Rate Hike, Markets Brace for Possible Intervention 
On the back of formidable economic data and the improved outlook for both domestic and foreign demand, we have revised our calls on GDP dynamics, the labor market, CNB policy, and the financial markets. We now expect two CNB hikes in 2017 (on 3 August and subsequently in 4Q’17), and three more hikes in 2018. The koruna is set to appreciate to EURCZK 25.70 in 3Q’17 and to EURCZK 25.00 by end-2018.
CZK is around 5% undervalued based on our BEER and FEER models. While the already long CZK positioning may prove a hurdle for short-term appreciation (the latest JPM Client Survey shows investor longs remain at record highs), we think the currency will find support from a central bank that is gradually turning hawkish.
We continue to hold shorts in EURCZK forwards exchange contracts of 27-Nov-17 expiries. The call is revised our end-2017 EURCZK forecast up to 25, given the lower than expected volatility of the currency post floor removal.
Further robust domestic macroeconomic performance and a forthcoming CNB rate hiking cycle reinforce our bullish koruna stance. The koruna has steadily appreciated against the euro since the start of May (following the exit of the EURCZK floor on 6th April), briefly trading below 26.00 this week (refer above diagram). We expect further appreciation of the currency and hold existing allocations and trades.
