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FX Crossroads

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The puzzle of the missing NOK rally

Wed, Apr 30 2008, 14:52 GMT
by Danske Research Team

Danske Bank A/S

Summary and conclusions

• • The NOK’s recent performance has failed to meet expectations – ours included. Despite a surge in oil prices and a recent upswing in the do-mestic stock market the NOK has remained under pressure. The corre-lation with other high-yielding currencies has been high and a substantial risk premium has been attached to NOK. Looking forward, a return in risk appetite will most likely support NOK, which is also backed by sound domestic economic fundamentals.
  

• • In December 2007 we identified a slowdown in the global economy. On the back of that, we anticipated JPY, EUR and CHF to deliver positive re-turns and AUD, GBP and CAD to deliver negative returns. Buying this basket would to date have delivered an annualised return of 14%, with a Sharpe ratio of 1.13. We expect a continuation of the slowdown in the months to come and the signals of our business cycle analysis to be un-changed.

• • Volatility has fallen and carry has performed well since the middle of March. We expect volatility to begin trending higher again in May, bring-ing carry outperformance to an end.

• • Our EUR/USD target of 1.60 has been reached. We will publish new FX forecasts on Monday, 5 May.
  

• • FX Crossroads is published every second Wednesday. Next publication date is 14 May 2008.

• Download full FX Crossroads with charts

Published on  Wed, Apr 30 2008, 14:56 GMT




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