April DN rate hike followed normal reaction pattern

• Denmark’s currency reserve was DKK438.3bn in April – DKK20.7bn lower than in March. 
• DKK20.1bn of the drop was due to net FX intervention from Danmarks Nationalbank (DN). 
• DN increased the rate on certificates of deposits by 15bp to 0.05% on 24 April, ending the regime of negative rates in Denmark. 

DN has just released April’s currency reserve figures. The currency reserve declined by DKK20.7bn in April to DKK438.3bn. DKK20.1bn of the decline was due to net FX intervention by DN. On 24 April, DN increased the rate on certificates of deposits by 15bp to 0.05%. 

The amount of intervention in April indicates that the unilateral rate increase was more or less business as usual for DN. Historically, DN has intervened around DKK10-20bn before making an independent rate change. That further means that the level of EUR/DKK in mid-April was uncomfortably high for DN, which then triggered the intervention and subsequent rate increase. 

EUR/DKK now looks to have stabilised around 7.4640 and the negative carry on short EUR/DKK positions is now at the lowest it has been all year following last week’s rate hike. If governor Lars Rohde furthermore continues to follow a less activist line (see Research DKK: Vagueness in the CB reaction function, 21 March 2014) then DN will probably stay on hold in the coming year. 

However, there is still a decent negative carry on short EUR/DKK positions and some room below the level EUR/DKK peaked at in late March. Hence, it cannot be ruled out that DKK will come under renewed pressure in coming months, which will require additional action from DN. 

We expect the ECB to remain on hold when the governing council meets next Thursday in which case DN will continue to be on hold as well.