According to analysts at Nordea Markets, things are heating up for the NOK as a plummeting oil price and weakening consumption growth suddenly speaks in favour of a downwards revision of the rate path by Norges Bank in December.
Key Quotes
“Just a month ago several factors argued in favour of a hawkish December path.”
“The list of potential NOK negatives has though started to evolve at a worrisome speed in recent weeks. The oil price now indicates as much as 10% downside risk for the NOK, but the plummeting oil price is not the only factor weighing on the NOK short term.”
“Usually the structural liquidity tide turns right about now, meaning that the Norwegian commercial banking system will be flooded with cheap NOK liquidity over year-turn (this year at least 10bn NOK will flow in to the system from now and until New Year). Norge’s Bank allows cheap NOK liquidity to prevent a skyrocketing NIBOR/OIS spread due to an expensive USD over year-turn. This is an underappreciated driver of the sluggish December NOK seasonality.”
“The housing market is another renewed concern for the NOK. The inventory-to-sales ratio on the Norwegian housing market has rolled over recently, which usually hints at an upcoming weaker trend in the yearly house price trend. Currently the inventory-to-sales ratio points to roughly unchanged house prices year on year (compared to the current 2.5% pace).”
“Broader trends in EUR/NOK and Norwegian house prices usually go hand in hand (likely driven by an exogenous factor). The NOK has recently traded slightly on the expensive side of the housing market developments. A recoupling of trends should lead EUR/NOK higher.”
“We go long EUR/NOK and target at least a move to 9.80 before year-end but don’t rule out a move of >5% over the next 1-1.5 months.”
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