The EUR/RON had another test above 4.7700 yesterday, touching 4.7800 in the after-hours trading session. The historically high turnover is supporting the idea of official offers coming in to protect the Romanian leu. Unless these official offers curb the trend again, we see a 4.7650-4.7800 trading range for today, with an upside bias.
Selling interest dominated again yesterday in the Romanian government bond market. Somewhat negative data has been released (higher CPI, widening trade balance, etc) and the upside pressure on the EUR/RON raises questions about whether the liquidity backdrop will remain supportive.
S&P's decision on its outlook for Romania (expected this Friday) could also play a role. In this context, today’s RON300 million June-2024 auction seems to have come at the wrong time. Nevertheless, the target amount is not that impressive and we believe that some marginal yield concessions from the Ministry of Finance will do the job. Hence, we expect an average yield around the secondary market mid-levels of 4.40%.
The upside move in the EUR/RON triggered paying interest along the FX swap curve, with implied yields shifting up to 40 basis points higher in the 1M-3M segment. Cash rates, on the other hand, remain below the deposit facility and we don’t see much potential for these to inch proportionally higher with the longer end. That is, unless yesterday’s EUR/RON turnover repeats for a couple of days.