FX Comment – More strengthening of the Norwegian krone ahead

by: Georgette Boele

  • Norges Bank leaves rates unchanged
  • We think that the Norges Bank is comfortable with a strengthening krone in an environment of higher oil prices, which we expect.
  • We expect the krone to outperform the euro this year and next year.
  • Our targets for EUR/NOK for the end of 2016 and 2017 are 8.75 and 8.25 respectively

 

The strong rally in oil prices since the lows set in January, has given strong support to the Norwegian krone. Today, Norwegian Q1 GDP numbers were released. Both total GDP and mainland GDP surprised on the upside. Meanwhile, the Norges Bank kept interest rates unchanged at 0.5%. In the statement the Norges Bank said that “consumer price inflation remains elevated, but a stronger krone may contribute to a slightly more rapid decrease in inflation than projected in March. On the other hand, the rise in oil prices may reduce uncertainty and contribute to somewhat higher growth in the Norwegian economy”. We think that the Norges Bank is comfortable with a strengthening krone in an environment of higher oil prices, which we expect. We expect the krone to outperform the euro this year and next year.