EUR/CZK likely to trade above 29.0 level following CNB’s FX intervention

The EUR/CZK currency pair is expected to trade above the level of 29.0, if the Czech National Bank (CNB) intervenes in the foreign exchange market, or the koruna should be weaker by around 8% from the current levels.

CNB’s offensive move in the Czech media has continued in recent days and hours. Governor Jiří Rusnok, who is making headlines recently has already given several interviews to Czech economic dailies explaining the central bank strategy following its exit from the current intervention regime.

While Rusnok confirmed that the exit could easily be put off until 2018, he also repeated the current CNB mantra that the use of the exchange rate (targeting) would probably be discontinued in mid-2017 (while the CNB would keep its promise to defend the EUR/CZK 27.0 floor until the end of 2017 Q1).

Further, the Governor said that the CNB had a lot of FX reserves (mainly in euros), so if the koruna dramatically weakened, the central bank could appear on the market and sell some euros to make a profit.

"From the fundamental point of view, such a CZK weakening would be not warranted as we see the EUR/CZK equilibrium rate much lower. However, we doubt that there could be a swift intervention on the other side from the CNB," KBC Central European Daily commented in its latest research report.