The Slovak crown showed no reaction to the political upheaval sparked by the government's heavy-handed move on March 3 to cancel a referendum on NATO membership and direct presidential elections, currency dealers observed.
After opening at 1.55 percent on the depreciation side of the mark/dollar basket, the crown climbed 0.40 percent in early afternoon trading, following the National Bank of Slovakia's (NBS) fixing of the crown at -1.15.
Dealers said the crown's recent strengthening, caused by the NBS's fixing the currency above market levels for the past two weeks, was not threatened by the political news. "There was no reaction on the market," said Tatra Banka forex dealer Xenia Eacups. "The crown now looks more or less stabilized and I think it will move around -1.0 percent [against parity] in the near future."
"You would see a currency reacting to this kind of news on every developed market, but the crown is different," another dealer said. "It just keeps on ignoring such political developments."
However, dealers seem to agree that the crown may have ended its three-week rally and a slight correction could appear in the next few days as investors take profits out after a run of strong gains. Some dealers said profit taking could push the crown down to between -1.40 and -2.00 percent against the basket.
"I think the profit-taking here will be something similar we have just seen with Polish zloty," said Dušan Svitek, a forex dealer at Slovenská Sporiteľňa. "The correction will depend on the extent of the capital outflow, but I do not expect big volumes to leave or any radical crown weakening."
The crown, which moves within a plus/minus 7.0 percent fluctuation band around the mark/dollar basket's central parity, has gradually appreciated by around two percent over the past three weeks, pushed up by foreign purchases and the NBS's policy of fixing the crown above market levels.
Dealers said foreign investors were buying crowns and depositing them on the local money market to play the wide interest rate differential. The NBS would not say how large a volume of foreign funds had been converted into crowns during the period, but dealers said they estimated it at around $200 million.
However, foreign buying has significantly weakened since the beginning of last week. "I personally think this trend has already stopped and the crown will not strengthen further," said Jozef Petrovič, a senior forex dealer at Tatra Banka. "The NBS's fixing today also supports this view."
The NBS announced that day that it was satisfied with the current level of the crown and that it did not intend to influence the market further by fixing it at variance with market levels. "It is always difficult to say whether we are satisfied with the crown or not," said NBS Treasury Director František Szulényi. "The fluctuation band is there to be used, but if we were not satisfied at the moment, we would not set the fixing where we did."