EUR/NOK to slump towards 9.75 by year-end – Nordea

NOK has weakened even though stock markets have been sideways and oil prices have hovered in the range 65-70 USD/barrel. A lower NIBOR could be the explanation. However, economists at Nordea believe NIBOR will turn higher from the summer onwards and they expect to see a lower EURNOK by year-end.

Why has NOK weakened? A lower NIBOR could be the explanation

“The reason behind the lower NIBOR-premium is much better structural liquidity in the NOK market, a situation we expect to last one more month, before structural liquid again becomes tighter from July onwards. Lower liquidity should push NIBOR higher. Moreover, we expect Norges Bank to raise the key rate by 25bp in September, this will give rise to an even higher NIBOR. This means that the current headwinds for NOK from lower short-term rates will turn to tailwinds in a few months’ time.”

“On the upside, the first resistance level to watch is 10.25. On the downside, 10.10 is a support level. The biggest risk for NOK – as a fairly small and vulnerable currency – remains the development in the stock market. In particular, it will be interesting to see how stock markets reacts to even higher inflation in the US ahead.”

“We still expect EUR/NOK to come somewhat down over time. A combination of somewhat higher oil prices and higher rates in Norway is why we hold our view that the cross will come down to 9.75 by year-end.”