NOK: Robust to euro strength – SocGen
|The krone was hurt during the first half due to strong euro appreciation, but the currency partly recovered over the summer and should keep its bullish bias in the months ahead on the back of the strong economic context in Norway, according to Olivier Korber, Research Analyst at Societe Generale.
Key Quotes
“Like the CAD, we expect the oil-sensitive NOK to stay fairly stable next year.”
“Flexible inflation targeting in action. Norges Bank is likely to keep its status quo despite collapsing inflation. The central bank is facing a conundrum, as CPI falls below 2% (target is 2.5%) for the first time since 2013. The statement of the June policy meeting expected inflation to continue to drift lower, but policy was not changed as improving activity and employment was supposed to ultimately generate inflation. Indeed, the unemployment rate remains extremely low (lastly 2.7%) and the PMI has surged since the start of the year to reach the 2010-2011 peak this summer. The tightening job market should support wage growth if activity continues to be robust. Governor Olsen said in June that he sees “no major danger” of deflation, and was fine with only 1-2% inflation provided that expectations remain anchored. All in all, the background of strong activity prompts the central bank to be more relaxed regarding the inflation targeting framework.”
“NOK/SEK to move towards parity. Inflation rates in Sweden and Norway are moving apart, with the former surging and the latter cooling. This will continue to pressure the NOK/SEK in the months ahead. Since the Riksbank announced QE in early 2015, the cross has been driven by relatively short rates. Contrasting inflation paths and the growth differential in favour of Sweden should guarantee that Norges bank will lag in the monetary policy normalisation process. Swedish rates are therefore likely to gradually increase faster than in Norway, maintaining the NOK/SEK’s bearish orientation.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.