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The Norwegian krone has begun 2021 on a strong note after an abysmal 2020. If the good news flow continues ahead, economists at Nordea expect to see movements towards 10.30 in EUR/NOK while USD/NOK could easily fall below 8.40. Further downside in the near-term is probably limited, though. 

Key quotes

“The downside in EUR/NOK in the short-term is probably limited. Foreigners are already quite long NOK. With EUR/NOK below 10.40, the foreign financial speculators could be tempted to realize profits which will slow the downward movement in EUR/NOK. The same argument holds for domestic financial speculators. We probably need to see oil prices above $55/barrel for markets participant to be willing to bet on EUR/NOK below 10.30. But in the near-term, restrictions will continue to weigh on demand and oil prices. Further out, there is reason to be more optimistic due to vaccines. Oil prices could very well rise to $60/barrel in H2 2021 which should send EUR/NOK down towards 10.00.”

“We expect that NOK will continue to gradually strengthen during 2021. Vaccination will result in oil demand recovering and somewhat higher oil prices. At the same time, vaccines will lead to a sooner normalization of the Norwegian economy and thus result in Norges Bank hiking rates sooner. Both of these factors should support NOK ahead. We also believe that the dollar will weaken against the euro this year, which is why we expect more downside in USD/NOK than EUR/NOK.”