NOK supported by unchanged policy from Norges Bank

As expected Norges BanK kept interest rates unchanged in connection with today’s MPC meeting. The central bank adjusted its interest rate path upwards in 2015 (2-8 bp.) and downwards in 2016(down 4-8 bp.). The tone in the monetary policy report was pretty much unchanged signaling the first hike "towards next summer".

•All in all Norges Bank appears to be on a ‘steady course’ as Norwegian domestic economy has panned out more or less as expected since the previous report in December. We expect the economy to bottom out the coming quarters and believe that today’s message from Norges Bank definitively will put an end to rate cut speculations for now. Hence, relative rates as well as the inflation outlook still support the case for a lower EUR/NOK in the coming six to 12 months and the initial reaction was also NOK positive: EUR/NOK dropped frem 8.34 to 8.30 and NOK/SEK is up from 1.0680 to 1.0740.

•We continue to see upside in NOK/SEK, especially after the very weak NIER business and consumer report from Sweden released yesterday, which together with the low inflation outlook in Sweden is likely to keep the Riksbank under pressure and to weigh on the SEK in the coming months.

•While investors lack of risk appetite appears to weigh on USD/JPY the other usual safe haven currency, CHF, has in contrast depreciated this week. We suspect that the past weeks CHF appreciation relative to JPY was due to inflows related to the Russian-Ukraine conflict, which now seems to have stopped. Hence, CHF/JPY has edged lower this week and while both USD/CHF and EUR/CHF have traded higher. As mentioned in IMM positioning - Last week’s drivers: ECB and safe haven flows (24 March), speculative long CHF positions are nearing stretched levels, which is a factor supporting the case for further near term upside in EUR/CHF.