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The Norwegian krone has been among the losers in FX majors spot space over the last month despite higher oil prices. Economists at Danske Bank continue to highlight the importance of the global investment environment and still prefer a strategic bearish NOK position, as illustrated by Bayesian updated return distributions on reflation.

Cyclicals are rolling over

“The notable part of the last month’s price action is that NOK underperformance to peers has coincided with higher commodity prices, incl. oil. The explanation is that bottleneck and inflation-scares – especially in global manufacturing – have more than countered the positive NOK impact from higher commodity prices. This has also been evident in recent sessions with cyclicals rolling over, which normally constitute a NOK headwind.”

“It seems markets share our view that EUR/NOK at 10.00 is not the new equilibrium. Either we get continued USD weakness and an implicit boost to reflation-sensitive assets (NOK positive) or we see a hit to global reflation from a turn in manufacturing and a turn in most notably the Fed’s rhetoric (NOK negative). We lean towards the latter and maintain a strategic bearish NOK stance.”