NOK: Correction potential – Danske Bank

Danske Bank analysts note that as per expectations, price action in EUR/NOK was very limited upon announcement with the Riksbank December hike message 30 minutes prior to NB triggering a move lower in EUR/NOK on the day.

Key Quotes

“More generally the NOK has weakened substantially over the last month leaving it close to 3% weaker than NB projected in September despite the NOK's new status as a G10 carry high-scorer.”

“Arguably, an important reason for the weakness lies in the negative terms-of-trade shock that Norway experienced this year from falling gas, oil and salmon prices. This in turn has driven a heavy underperformance of Norwegian equities, which generally deliver energy and inflation exposure to markets - exposures that the global environment does not favour currently.”

“Finally, M&A activity, poor liquidity and technical levels have also contributed to the magnitude of the recent NOK weakness. Fundamentally, we believe the latest weakness has gone too far but we acknowledge that there are few imminent triggers for a turnaround. Indeed, year-end fears are likely to keep some foreign accounts away.”

“Overall, we still believe in NOK correction potential but it is likely we need to see a substantial change in the global investment environment before this happens. In sum, we stay side-lined in NOK FX for now.”