EUR/NOK: All stars need to be aligned for the krone to strengthen – Nordea

Norges Bank’s rate hikes and high oil prices should support the Norwegian krone. However, all stars need to be aligned for NOK to strengthen and that will not be the case if a hawkish Fed scares markets. Economists at Nordea see EUR/NOK just under 10.00 at end-2021 but there are caveats.

Two scenarios for the next three to six months

NOK performs moderately

“Norges Bank hikes, short term NOK rates rise to the top among G10 currencies. Oil prices remain high. The Fed moves slowly and is calmer than expected. Stock markets hold their ground. The USD is not that attractive.”

NOK does not perform (until markets have calmed down)

“Norges Bank hikes, short term NOK rates rise to the top among G10 currencies. Oil prices remain high. But the Fed is much more hawkish than expected, QE tapering begins. Reflation trades are unrelieved, risk sentiment is sour. USD strengthens.”

“While we lean towards scenario 1, that NOK will perform moderately, be warned that scenario 2 has also a high probability of materialising. Longer-term, we see moderate downside in EUR/NOK given the outlook for both rates and oil prices. Regarding USD/NOK, we expect the cross to move about sideways as we believe the USD will also strengthen.”