Level of krone unlikely to overly worry Norges Bank – Rabobank

The Norwegian krone may be the second best performing G10 currency in the year to date, but the level of the currency is well below its highs of the past decade. While policy makers will likely be keeping an eye on the pace of the gain of the NOK, the move this year is unlikely to throw the Bank’s intentions of hiking rates this year off course, Jane Foley, Senior FX Strategist at Rabobank, reports.

Scope for an earlier rate move

“The expectation that Norges Bank rates will go up this year is already baked into the price of the NOK. Indeed, expectations that the Norges Bank could hike twice before the end of this year have risen this week. The absence of significant concerns about excessive currency strength affords the Norges Bank scope to act more independently of the decisions of other central banks.” 

“We continue to see room for further moderate appreciation of the NOK, to EUR/NOK 10.00 on a three-month view.”

“On a six-month view the market is currently almost fully priced for two 25 bps rate hikes. This suggests the market is looking for a September rate hike to be followed by another policy tightening in December. The Norges Bank will have ample scope for push back on this speculation at next week’s policy meeting. The guidance given at this meeting could thus be directional for the NOK.” 

“Either way, assuming that most other major central banks retain a more cautious outlook on policy for now, we would look to buy the NOK on dips vs. a range of G10 currencies including the EUR.”

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