USD/NOK and EUR/NOK to grind lower toward 8.60 and 10.00 respectively – Rabobank

Despite a recovery in the Norwegian krone from its weakest point last March, current levels of the NOK vs. the USD are still softer than their five-year average. Given market speculation that the Norges could potentially hike rate twice this year and progressively through 2022, economists at Rabobank do expect the NOK to find support.

Norges Bank is one of the most candid central banks in the G10

“On the assumption that Norges Bank hawkishness allows USD/NOK to push down to the 8.60 area, we expect EUR/NOK to trend back towards 10.00 on a six-month view.”

“Even if Norges Bank rates were tightened moderately, monetary conditions would still be expansionary. Market speculation suggests that the deposit rate could be hiked twice this year from its current level of zero and potentially in each quarter next year. This would take the deposit rate back to its 2019 high.”

“We would favour a slower pace of tightening in 2022 given continued risks related to the pandemic and bearing in mind the cautious tone that is still likely to be exhibited by other G10 central banks in this timeframe.”