EUR/NOK: Krone to rebound further but at more gradual pace – MUFG

The krone has reversed around three-quarters of the sharp losses sustained in the first quarter of Q1 2020 when the negative COVID-19 shock first hit as the EUR/NOK pair has fallen back since the middle of last year towards support at the 10.500-level. Analysts at MUFG Bank expects the NOK to continue recovering losses in 2021 but at a more gradual pace.

Key quotes

“The krone has benefitted from the ongoing improvement in global investor risk sentiment and rebound in the price of crude oil. Similarly, the price of oil has also reversed around three-quarters of the sharp losses sustained in Q1 2020.”

“Our oil analyst maintains a bullish outlook for the price of oil which he expects to rebound further towards USD60/barrel in the year ahead. Favourable oil price developments support our outlook for a stronger krone.”

“We still see scope for the undervalued krone to rebound further in the year ahead although more modestly than over the past nine months.”

“Domestic fundamentals in Norway remain attractive for krone strength. Norway’s economy has been hit less hard by the COVID-19 shock. Mainland GDP in Q3 was just over 3% below the peak from the end of 2019. Growth of around 4.0% is now expected in 2021.” 

“The Norges Bank is currently planning to raise rates well before other major central banks during the 1H 2022.”