Danske Research Team
Danske Bank A/S
Norges Bank to buy NOK250m in October and November
Norges Bank (NB) has just announced that it will buy NOK250m per day starting from 1 October. We expect that NB will continue to buy in November at a similar daily amount, which will take the total yearly purchases to NOK10bn. The NOK buying reflects that the taxes paid in NOK and the dividend from Statoil are no longer big enough to cover the oil-adjusted deficit. Hence, NB now has to tap into the proceeds in foreign currency from the State Direct Financial Interest (SDFI). The next important date is the budget on 8 October, when we will get new information regarding the oil-adjusted deficit and the net cash flow from the oil sector. This has important implications for the decision about net NOK buying in 2015.
EUR/NOK targets 7.95
The announcement of NOK buying is a game-changer compared to the normal purchase of foreign currency. The central bank already mentioned the possibility of NOK buying in its spring report but it is still a major turning point for the Norwegian FX market. EUR/NOK has fallen sharply on the announcement but we think it has further to go. We expect that this announcement will trigger a break of the low from 4 September at 8.0967, targeting 7.95. FX flow data from Norges Bank indicate that speculators are light positioned in the NOK as they have been heavy sellers of the NOK over the past two weeks. Fundamentally, we are bullish on the NOK as the market is too pessimistic about the impact on Norway’s economy from falling oil investments in our view. We forecast EUR/NOK to reach 8.10 in 1 month and 7.95 in 3 months.
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