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In view of Jane Foley, Senior FX Strategist at Rabobank, optimism regarding the contribution from the oil industry going forward would be compromised if the price of oil were to extend its recent fall, which would be a headwind for the Norwegian economy and it is thus a significant consideration for the Norges Bank’s interest rate policy.  

Key Quotes

“The central bank hiked rates for the first time in seven years at its September policy meeting and has indicated that it could tighten policy again at the beginning of next year.   However, there are risks to this view.   In reflection of the recent drop in the oil price and the doubts about Norges Bank’s interest rate policy, we have raised our forecasts for EUR/NOK.   We expect to see EUR/NOK at 9.60 on a 3 mth view up from 9.40 previously.”

“Just as the recovery in oil to its October high raised optimism regarding oil generated growth, the recent sharp decline in oil prices will be a concern to the central bank.   Saudi Arabia is currently reported to be pumping a record 11.2 mln b/d.   Whether or not its output will be trimmed is likely to be the subject of discussions at the December 6-7 OPEC meeting.”

“The Norges Bank’s next policy decision is scheduled for December 13. The risk that the Norges Bank displays a less hawkish tone is a currency negative factor.   That said, there is also reason to suspect that the ECB may have to respond to signs of slowing growth in the Eurozone by adapting its forward guidance.”

“Overall, we still see room for the NOK to outperform the EUR is the month ahead, though any further falls in oil prices would impact this view.”