USD/NOK: A hawkish FED gives summertime sadness to the Norwegian krone – Nordea
|The Norwegian krone has weakened markedly against both the euro and the US dollar as hawkish Fed surprised markets, shattering reflation trades such as being long NOK. This currency is likely in store for summertime sadness, but economists at Nordea remain optimistic on behalf of NOK towards year-end.
NOK is not attractive now due to a low NIBOR, but this will change from August onwards
“Over the summer, the risk is for a somewhat weaker NOK – especially against the USD – if US figures come in better than expected and inflation surprises yet again on the upside. Key to watch will be Nonfarm Payrolls and inflation prints. If these surprise positively, markets will start betting that the Fed will become even more hawkish. This will likely be good news for US rates and USD, but bad news for stock markets and thereby NOK.”
“Yet, we remain positive on NOK towards year-end. We expect NOK to start performing again when NIBOR rises as we come nearer to Norges Bank’s September hike. The reason behind the lower NIBOR is much better structural liquidity in the NOK market, but this will change after the summer. Lower liquidity should push NIBOR higher towards year-end. Moreover, Norges Bank’s September hike will push NIBOR even higher, thereby supporting NOK. This means that the current headwind for NOK from a lower NIBOR will turn to tailwinds in a couple of months’ time.”
“Higher rates in Norway is why we hold our view that EUR/NOK will come down below 10 by year-end. But the same cannot be said for USD/NOK, we still believe USD/NOK will trade relatively sideways towards year-end.”
“USD/NOK is currently trading near the 200-day moving average at 8.70, which should be a solid resistance level. But if sentiment sours even more, then we could be in line for movements all the way up to 9.00.”
“For EUR/NOK, there is a solid resistance level near the 200-day moving average at 10.40.”
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.