NOK: Little respite – Rabobank

Jane Foley, senior FX strategist at Rabobank, points out that the Norges Bank has been the most hawkish central bank in the G10 over the past year or so and despite this, the NOK has been the worst-performing G10 currency this year and is currently down 9.1% vs. the USD in the year to date.

Key Quotes

“How the NOK performs in the months ahead could have more to do with the outlook for global growth and the relative position of the oil price than Norges Bank policy. If a trade deal is signed between the US and China, a little respite could be in order for the NOK.”

“There is little doubt that Norway has very solid fundamentals. The country’s oil reserves have fed a wealth fund that surpassed a value of NOK 10 trn on Friday - the worth of the foreign assets in the fund being boosted by the relative weakness of the NOK.”

“In text book terms, the solid economic backdrop in Norway combined with the higher interest rate differentials on offer this year could be associated with a stronger exchange rate. However, the performance of the NOK has been the opposite. This can likely be explained by the NOK’s association with commodity prices and by the lack of liquidity in the NOK. Despite the strength of the economic fundamentals in Norway, thin liquidity means that the NOK cannot be considered as a safe haven.”

“We are optimistic that EUR/NOK could push back to the 10.15 area on a 1 month view. We are also wary about how long any optimistic surrounding a part trade deal will last.”