NOK weakness not over – Nordea

According to Joachim Bernhardsen, analyst at Nordea Markets, global manufacturing slowdown, Brexit and trade tensions are not exactly the ingredients to put in a NOK cocktail.

Key Quotes

“We revise our EURNOK forecast upwards and see more potential for a weaker NOK in the short term. We think global sentiment will improve towards mid-2020 and this should pave the way for the NOK to regain some territory.”

“Forecasting a weaker NOK in the short term at the same time as we expect Norges Bank to hike rates at the upcoming monetary policy meeting in September might sound like a contradiction. And Norges Bank has admittedly provided some support to the NOK when they have hiked rates. However, in the longer run other factors have trumped (yes, I used that word intentionally) Norges Bank and kept market pricing for hikes muted.”

“Seasonality also argues for new record highs in EURNOK by year-end as the latter part of Q4 typically works against the NOK. We have of course no guarantee that this will repeat itself, but until proven otherwise we like to stick to the historical pattern.”

“Going in to next year we gradually expect risk sentiment and global macro data to improve in a response to the ongoing monetary policy easing. This should be good news to the cyclical Krone. Although the Norges Bank effect has been limited another hike next year should also be positive for the NOK.”