EUR/NOK seen lower, Norges Bank expected to hike rates – Danske Bank

Kristoffer Lomholt, Senior Analyst at Danske Bank, expects the Norwegian Krone to gather further traction in the next months.

Key Quotes

“Norges Bank hiking rates are to us important fundamental triggers for the next leg lower in the overvalued EUR/NOK. We also think markets underestimate the Norges Bank hike outlook due to strong mainland growth, upside risks for the petroleum industries and a tight labour market amid a working Phillips curve”.

“At the June meeting, Norges Bank sent an important signal to markets that a much stronger NOK is now justified. In other words, the currency has gone from being an argument against rate hikes to a situation where NOK weakness in itself is an argument for faster rate hikes”.

“In addition, we think the four headwinds that have been the main culprits behind the NOK underperformance in recent months are about to stabilise or even become direct NOK tailwinds (see overleaf). We leave our forecast profile unchanged and target EUR/NOK at 9.40 in 1M, 9.20 in 3M, 9.20 in 6M and 9.10 in 12M”.