NOK focused on Norges Bank – Danske Bank

Jakob Christensen, Chief Analyst at Danske Bank, gave his views on the likely steps by the Norges Bank in the next months and the implications for NOK.

Key Quotes

“In terms of Norges Bank (NB), it is noteworthy that the significant easing bias in the September rate path (implied 40% probability of a 25bp rate cut) was likely left to counter some of the NOK pressure stemming from the official shift to a neutral stance in the statement”.

“While the oil price has moved higher since the September meeting, Norwegian growth is, in our view, less sensitive to oil price changes around current levels”.

“The big question, therefore, is if NB can tolerate the monetary tightening stemming from currency appreciation as the NOK is now 3% stronger than NB assumed in its policy projections”.

“Economic data will react with a lag to a stronger currency and it will be the next quarter of data that will determine whether NB will re-implement an easing bias/cut rates further”.

“At this stage, we would not be surprised to see EUR/NOK ending the year at unchanged or higher levels relative to the current spot, but catching the falling knife short term has proven very difficult”.

“Yet, NB only pencilled in a 0.6% appreciation of the NOK over the next full year and our short-term financial models suggest the latest move lower in EUR/NOK is much overdone given the coinciding moves in relative rates, the oil price and risk sentiment. Our short-term financial model for EUR/NOK – which has historically been one of our best FX models – has 9.17 as a ‘fair value’.