Euro-zone debt woes have hit the Hungarian economy particularly hard due to its export reliance on neighboring Euro-area nations.
Anemic growth (Q3 GDP at 1.4% y/y), rising inflation expectations (CPI at 3.9%), high unemployment (9.9%), and public debt as a % of GDP just above 81% set the tone for Hungary’s credit rating downgrade to junk status.
Yields on 5-yr government debt surged above 8% last week spurring Hungary’s government to request IMF aid. However, any funds will be contingent on strict austerity measures which may face heavy political and social opposition similar to that seen in Greece.
Data Watch – OCT Unemployment Rate (NOV 28), Hungary Base Rate Announcement (NOV 29), OCT Producer Prices (NOV 30), NOV PMI (DEC 1), SEP F Trade Balance (DEC 2).
Anemic growth (Q3 GDP at 1.4% y/y), rising inflation expectations (CPI at 3.9%), high unemployment (9.9%), and public debt as a % of GDP just above 81% set the tone for Hungary’s credit rating downgrade to junk status.
Yields on 5-yr government debt surged above 8% last week spurring Hungary’s government to request IMF aid. However, any funds will be contingent on strict austerity measures which may face heavy political and social opposition similar to that seen in Greece.
Data Watch – OCT Unemployment Rate (NOV 28), Hungary Base Rate Announcement (NOV 29), OCT Producer Prices (NOV 30), NOV PMI (DEC 1), SEP F Trade Balance (DEC 2).
HUF – FX VIEWS: Forint outperformance a mirage?
- USD/HUF rebounded from a test of the key 225.00 pivot to current levels around 233.40 as HUF went back on the offer after Merkel’s Euro-bound dismissal and reality set in that Hungary may not be able to meet required conditions for an IMF loan.
- USD safe haven flows look set to continue as a resolution to the Eurozone debt crisis is nowhere on the horizon.
- The main risk continued USD/HUF upside may come from a potential 50bp benchmark rate hike up to 6.5% at the central bank’s next meeting on November 29th.
- However, GDP y/y has printed lower from 2.5% in Q1 to 1.4% in Q3 which may make any form of policy tightening more detrimental than beneficial.
- USD/HUF downward trend channel on 1-hr charts takes the form of a potential bull flag when zooming out to 4-hr charts; consecutive 4-hr closing breaks above the 234.00 figure projects a technical measured move objective to the 260.00 figure.