Although Norway’s inflation has decelerated since March, the Norges Bank kept its hawkish stance at the June meeting. As the Norwegian central bank is first in line to raise rates, both EUR/NOK and USD/NOK are expected to suffer further weakness, according to economists at Société Générale.
NOK/SEK to stabilize above parity
“The Norges Bank is an outlier, starting to tighten even before the Bank of Canada and the RBNZ, who are the most hawkish in the G10. Its monetary divergence with the Fed, ECB and Riksbank is even more striking. As such, both EUR/NOK and USD/NOK are likely to remain under selling pressure in the next months.”
“For the USD/NOK specifically, the direction of oil prices remains the core driver of the pair, ahead of domestic monetary policy. As we head to press, Brent futures are trading above $72/bbl, likely breaking the 2019-2021 triple top. As long as risk-on conditions prevail, upward risks still dominate for both oil prices and the NOK.
“While both NOK and SEK are growth-sensitive currencies, the NOK side of the cross is the most correlated to risk conditions. Year-to-date, the 6% appreciation is therefore exceptional for a relative value cross. Beyond risk assets, NOK/SEK is also very exposed to relative monetary policies in Scandinavia via interest rate differentials. As the Norges bank confirms its hawkish turn vs the Riksbank, which is much more cautious, the rates spread continues to point north so that NOK/SEK is most likely to stabilise above parity.”
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