This week's Norges Bank decision could refocus market attention on Norway's improving domestic fundamentals. Importantly, economists at TD Securities do not think these are currently in the price and look for EUR/NOK to resume its downward trajectory in the weeks ahead.
Key quotes
“All eyes will be on the Norges Bank policy rate projections in the MPR. While they're fully expected to pull forward their rate hike path to signal the first hike this year, we think that markets could still react hawkishly as the 'armchair Scandies traders' come off the sidelines. A hike stands in sharp contrast with the vast QE still being deployed from major central banks.”
“If our expectation for a hawkish policy shift is correct, we think EUR/NOK looks likely to trend lower in the aftermath of this week's policy decision.”
“With support in the 10.00/02 zone now in view, we would not be surprised to see a test of the January 2020 lows just under 9.82 in the weeks ahead. In any case, we think residual rallies back toward 10.15 are likely to be sold unless the FX market landscape undergoes a meaningful shift in risk appetite and other key underlying dynamics.”
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