NOK suffers more from risk aversion than SEK – Commerzbank
|Analysts note that while both Scandinavian currencies are sensitive to risk sentiment, the Norwegian krone consistently shows a stronger negative reaction to rising risk aversion than the Swedish krona, reflecting its lower liquidity and heavier reliance on oil., Commerzbank's FX analyst Michael Pfister notes.
NOK more vulnerable as risk rises
"One factor that was somewhat overlooked on Tuesday, but which is regularly discussed by analysts, is the risk aversion of Scandinavian currencies. Both the SEK and the NOK are among the least liquid G10 currencies (probably only surpassed by the New Zealand dollar), so it stands to reason that there will be a sell-off of SEK/NOK in periods of increased risk aversion. However, there are differences here, too."
"In the case of the Norwegian krone, there is a slight correlation between increased risk aversion (as measured by changes in the VIX) and the NOK's idiosyncratic performance. If risk aversion increases - i.e. if the VIX shows a positive daily change - the NOK usually suffers, even if the R² is only just in double digits. The situation is different for the Swedish krona, where the relationship is much weaker in terms of both direction and coefficient of determination."
"This analysis hardly changes when data from a longer period is considered. In essence, this suggests that the NOK is more adversely affected by risk aversion than the SEK. This may be due to its greater dependence on oil as an export commodity. In a phase of greater risk aversion, the oil price is also likely to fall. However, this may also be due to the lower liquidity of the NOK. In any case, the NOK has been struggling compared to the SEK this year, probably due to increased uncertainty caused by its greater sensitivity to changes in risk sentiment."
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.