Despite good conditions, the krone is at one of the weakest levels against the dollar this year.
On Monday morning, a US dollar will be exchanged for 8.65 Norwegian kroner. One euro is exchanged for NOK 10.29. A weak krone means in practice that imported goods become more expensive and the tourist stay can cost you more than planned.
The weak krone exchange rate comes despite signals of interest rate hikes from Norges Bank and a high oil price per barrel.
– There is a significant weakening in a short time. The krone has weakened particularly against the dollar, says Dane Cekov, an analyst at Nordea.
Last week, Norges Bank signaled two interest rate hikes this year.
– It should have been good news for the krone, but the market did not react to it. The krone weakened surprisingly after the meeting. It must be seen in the context of the signals from the US Federal Reserve, which announced the day before that they will begin discussing the downsizing of the QE program. It came as a great surprise to many, says Cekov.
Also read: The US Federal Reserve is increasing its estimate for inflation
– Sour in the stock market
Last week, the US Federal Reserve signaled that it would raise interest rates earlier than the market expected.
Recently, experts in Nordea have seen that the dollar has strengthened very much, while risk-sensitive currencies have weakened, such as NOK, CAD and NZD.
– In advance, it was expected that the US Federal Reserve would not announce any major changes. But the Fed announced that they envisage two interest rate hikes in 2023, and a number of board members will open for interest rate hikes as early as next year. It is far faster than signaled, says Cekov.
He explains that the US Federal Reserve was more hawkish than many expected, including the experts at Nordea.
– The air has been taken out of the reflection trade. The stock market is sour, a number of commodities are falling and the krone exchange rate and other risk-sensitive currencies are weakening, while the dollar is strengthening, says Cekov.
Also read: Decline in several stock exchanges following a signal from the US Federal Reserve
– Not favorable enough to buy the crown
The Norwegian economy is affected by the oil price and the krone exchange rate tends to be particularly vulnerable to fluctuations. Lately, it does not look like the krone exchange rate is linked to the oil price anymore. The oil price is relatively high now with a price of 73-74 dollars per barrel, but the krone is still weak.
He explains that it is not favorable enough for investors to buy the krone at the moment. The 3-month Nibor, the reference rate in the money market, was 0.54 per cent at the beginning of the year. Recently, it has been 0.2 percent.
– Nibor has become more than halfway in the short term. Right now you are getting better returns in other currencies. But liquidity in the money market will tighten during the autumn and it will pull Nibor up again, the expert says.
In the short term, Nordea believes it will be difficult for the krona to perform. This is due to the uncertainty surrounding key figures in the US and a low Nibor. He believes the summer may offer several positive surprises in terms of what US unemployment and inflation figures will show. There are many indications that employment in the country will increase over the summer. There are still 7 million more unemployed in the United States than there were before the pandemic.
Through the pandemic, Americans have received increased unemployment benefits. Some states have begun to reverse it. In addition, several Americans, especially women, have been home with children during the pandemic due to closed kindergartens and schools. Now the schools are about to open up and thus more people can return to the workforce. Several employers in the US have also stated that they lack manpower, and we see that they are trying to lure new workers with signing bonuses and increased wages. This may contribute to higher inflation in the long run.
– Good key figures increase the probability that interest rates will rise earlier. If employment numbers increase, the market will price in faster interest rate hikes and the downsizing of the QE program in the United States. It will be good for the dollar, but probably bad news for the stock market. A bad mood in the stock market will result in a weaker krone. That is what will be most exciting to follow this summer, says Cekov.
The QE program launched in March 2020 has bought government bonds worth 700 billion US dollars.
Also read: – This share can more than double at record speed
The crown will have a tailwind throughout the autumn
When the summer is over, the outlook looks better for the krone exchange rate.
– However, we are more optimistic on behalf of the krone in the slightly longer term. We believe that the krone will gain traction when Norges Bank raises interest rates in September and Nibor rises again, says Cekov.
He estimates that the krone exchange rate around the end of the year will trade below the 10s when buying a Euro.
– When players in the foreign exchange market see that the interest rate by owning Norwegian kroner is good enough, they will probably be tempted to buy kroner again, he points out.
– Our view is that EURO / NOK will trade around 9.75 at the end of the year. EURO / NOK down to 9.5 kroner is, however, very difficult to imagine. The krone has probably become permanently weaker, says Cekov.
They have carried out an analysis to see what has given a weaker krone and they found that ESG has affected the krone exchange rate.
– The krone is less valuable than what the historical connection with the oil price indicates that it should be. This is probably partly due to ESG, he says.
The analyst points out that the krone exchange rate against the euro is 10.29 and it is not far from where we were just before the corona crisis.
– From September, the key interest rate will be raised and Nibor will rise. Then the return on the krone will increase and this can make the players in the foreign exchange market invest in the krone again. But the return must be high enough to compensate for the investors’ risk.
He concludes by re-emphasizing how sensitive the crown is.
– As soon as something happens in the world that is bad for the stock market, the krone weakens, Cekov concludes.
Also read: Reveals billion-dollar losses for Norwegians: – The most important document since World War II
Advertising
Big overview: Here are the sales in the online stores now
–
