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Over the last three months, the NOK has been the top performing major versus both the USD and EUR as monetary policy having reached the lower bound and the central bank’s predisposition towards monetary normalisation, albeit not until 2022, has helped drive the momentum. Jeremy Stretch from CIBC Capital Markets foresees the EUR/NOK pair trading at 10.80 and 10.50 by the third and fourth quarter respectively.

Key quotes

“The central case scenario as presented by the Norges bank at their June meeting did not foresee a hike until Q4 2022. The more hawkish bias, especially compared to their peers, was a result of better than expected data. The mainland economy contracted a mere 2.1% in Q1, while monthly GDP moved back into positive territory into May. The mild contraction ahead of a modest rebound led the Norges bank to revise up their estimates for the 2020 contraction. They now assume a subconsensus 3.5% contraction, followed by a 3.7% rebound next year. Helped by solid fiscal expansion, the economy is set to regain its lost output in a little over a year.”

“Rising oil revenues, monetary policy stability, solid fiscal impulses – fuelling potential repatriation flows – and upgrades to macro assumptions, provides a supportive NOK backdrop. Having tested previous Q4 targets we have lowered the end year forecast to 10.50.”