Jane Foley, Senior FX Strategist at Rabobank, points out that at last week’s policy meeting the Norges Bank confirmed that it is one of the most hawkish central banks in the G10 by reiterating its intention to raise interest rates in September, but the NOK was unimpressed mostly because the market had expected policymakers to take an even more hawkish tone.
Key Quotes
“Given that the ECB has warned that its key rates are likely to remain on hold “at least through the summer of 2019″, we still see room for EUR/NOK to edge lower towards the end of the year. That said, softer oil prices pose a key risk to this view. The next key event for the NOK will be Thursday’s release of Q2 GDP data.”
“On a 5 day view the NOK is the worst performing G10 currency on the back of disappointment triggered by last week’s Norges Bank policy meeting and creeping concerns that Norwegian economic growth data could disappoint. However, on a year to date basis the NOK is the fourth best performer in the G10 universe after the safe havens USD, JPY and CHF. This is linked to Norway’s recent solid recovery in growth.”
“This week, the Q2 GDP report is due. The market median stands at a very healthy 0.5% q/q for the mainland figure, though not all forecasters are optimistic given the likely impact of dry weather on electricity production. In addition, the correction in house prices and construction could remain a constraint, as could the government’s less accommodative budget position this year. For the broader economy, the slippage in oil prices could weigh on the outlook.”
“Insofar as a September rate hike is comfortably priced in by the market, investors will be looking for clues as to how likely another move is in the coming months. Thursday’s Q2 GDP release coincides with the publication of Norway’s oil and gas survey and this will be followed at the end of the week by the June labour report. Strong data would be supportive for the NOK. However, the impact of strong GDP data would be diluted if oil prices continue to drift lower.”
“Our central view is that EUR/NOK can return to the 9.40 area around year end but we are watching the headwinds closely.”
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