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Despite a very firm message from Norges Bank last week, the NOK hasn’t really rallied due to relatively low global risk appetite, but Norges Bank now forecast a quite significant NOK appreciation, notes the research team at Nordea Markets.

Key Quotes

“Previously they have forecasted only a minor NOK appreciation, thus making the case for hikes weak if the NOK strengthens. However, with the new I-44 forecast, the NOK can go bananas without a strong NOK being an argument for postponing the hike.”

“If the global environment allows it, Norges Bank could accept EUR/NOK in 9.15-9.20 in Q4 without any bearing on monetary policy, that is, an unchanged NOK from here is actually an upside risk for last week’s rate path.”

“Since February EUR/NOK has traded very closely connected to periods of risk on and risk off, as indicated by the high correlation with S&P 500. A cease-fire in the trade war is hence likely needed to pave the way for lower EUR/NOK. We also need to consider the usual seasonal weakness in NOK in June/July (due to a turning excess liquidity picture in NOK) – and hence we don’t think that the time has yet come to put on a long NOK as a consequence of the new I-44 forecast by Norges Bank.”