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Polish manufacturing growth for March surprised to the downside, with output growing by less than 1% yoy.
Headline industrial output was boosted by mining and utility output, but core manufacturing was weak.
One month's reading should not be taken too literally though – seasonally-adjusted manufacturing output is still growing at a steady 0.6%m/m rate and the labor market continues to tighten. So, from this side, there is no reason to turn dovish.
From the inflation side, of course, there is every reason to be dovish – in fact, MPC doves are now remarking that the probability of a rate cut exceeds that of a hike.
We see dovish monetary policy gradually driving the zloty weaker over the coming year.
We hold an OW position and short USDPLN outright. The BoP remains net supportive, with a sustained growth in service exports and a modest pickup in FDI. We believe the loss of momentum in euro area’s growth surveys is temporary and is likely to reverse.
Meanwhile, Polish activity data momentum has stayed relatively resilient supporting the Zloty. NBP’s dovish stance is not helpful, but we believe it is only marginally negative for FX given it is supporting bond valuations
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