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Slowing growth and investor bias toward US assets represent headwinds for the NOK. Near-term, the recent spike in EUR/NOK looks overdone, opening up for a move lower, analysts at Danske Bank inform.

Key quotes

“Over the last quarter, the mainland economy has shown clear signs of growth decelerating and leading indicators suggest mainland growth close to 2%. Importantly, the activity level remains above the economy’s potential, resulting in continued downside pressure on unemployment and upward pressure on wages. The latest wage and inflation data has been higher than expected, highlighting the capacity problems facing the Norwegian economy.” 

“The December rate path implicitly states a 40% probability of a 2020 hike. Things look all set for unchanged policy rates, but with the weakening of the NOK, the tightening of Nibor-policy rate spreads and rising cost levels, we think rates markets’ bias towards pricing rate cuts is wrong.” 

“We think the latest NOK spike higher is overdone, and see potential for a near-term move lower again. We forecast the EUR/NOK at 9.90 in 1M, 9.80 in 3M, 9.70 in 6M and 9.70 in 12M.”

 

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