EUR/NOK: Krone to recover losses and appreciate in 2021 – MUFG
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During October the krone weakened modestly against the euro from 10.995 to 11.087 as the krone has been one of the most sensitive G10 currencies to risk sentiment. Economists at MUFG Bank expect the NOK to appreciate next year though the currency may face some more pressure in the short-term.
Key quotes
“The krone has been undermined by building disruption from COVID-19 second waves in Europe. It has resulted in global equity markets revisiting recent lows. The correlation between the krone and the equity markets remains one of the strongest amongst G10 currencies.”
“The price of Brent crude oil has fallen by 8.5% in October in response to the softening outlook for global demand. However, our oil analyst maintains his bullish outlook for the price of oil for the year ahead and views short-term weakness as temporary. He expects the price of Brent to rise up towards $57/barrel in the year ahead. It should support a gradual strengthening of the krone.”
“The krone should benefit from Norway’s solid economic fundamentals. The COVID-19 shock has been less acute in Norway than in other major European economies. Norway’s mainland economy is on track to contract by around -3.5% this year which is less than half the rate expected for the euro-zone. COVID-19 cases have been rising again in Norway though which poses downside risks to growth heading into year end.”
“We expect the krone to rebound gradually in the year ahead as the COVID-19 shock fades and strengthening global recovery supports a higher price of oil. However, it remains subject to downside risks in the near-term.”
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