NOK: Recent strength seen as temporary – Nordea

Nordea’s Senior Macro and FX Strategist Sara Midtgaard notes that higher Oil and gas prices plus Norges Bank’s daily NOK purchases have recently supported the Norwegian Krone, with a risk that EUR/NOK briefly drops to 11 in March. However, she expects this NOK strength to fade, with EUR/NOK seen returning toward 11.25 over three months.

Temporary NOK boost from Oil and flows

"The NOK has already received some support in January and February from higher oil prices and Norges Bank’s daily NOK purchases. Nevertheless, the currency’s movements over the past week have been relatively modest given the sharp rise in oil prices throughout March."

"A further increase in oil and gas prices could raise the need for Norwegian oil and gas companies to purchase NOK in order to pay petroleum taxes. At the same time, Norges Bank continues to buy NOK at a pace of NOK 600 million per day. This could leave room for some additional NOK strength during March."

"We expect Norges Bank to revise the interest rate path significantly higher at the March meeting, indicating a clear probability of a rate hike. Such a move would imply a larger upward revision to the rate path than currently priced by the market. While this could provide some support to the NOK, experience suggests that exchange rate reactions to monetary policy meetings are often relatively short-lived."

"There is a risk that EUR/NOK could fall to 11 during March. However, we expect such a move to be temporary and forecast that EUR/NOK will move back towards 11.25 over the next three months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)