The fear of interest rates that lowers the stock markets also spreads to the krone exchange rate, resulting in more expensive dollars and euros. – The krone must overcome strong headwinds if it is to be able to strengthen anything particularly more this year, the DNB analyst believes.
The krone is weakening especially against the dollar, but also against the euro. This means that a dollar now costs NOK 8.99, which is the most expensive since mid-December, and around 20 øre more than just a week ago.
The euro costs 10.16 kroner, which is also the highest in just over a month.
A weaker krone makes it more expensive to shop from abroad, while the export industry benefits from the fact that it becomes cheaper for foreigners to buy our goods.
– The krone is still supported by high and rising oil prices, but volatility (turmoil, journ.anm.) In global stock markets also causes volatility in the krone, writes currency analyst Ingvild Borgen Gjerde in an analysis.
Higher oil prices, troubled stock markets
The oil price, which in the new year has risen to the highest since 2014, and the highest ever measured in kroner, has provided solid support for the krone.
But then the stock markets have again fallen with concerns about the coming rise in interest rates in the US, which is now expected to start in March.
Falling risk appetite is usually bad news for the krone exchange rate, as it is a relatively small currency and investors prefer safer investments such as the dollar, when the storms are at their worst.
Borgen Gjerde also points out that the movements in the stock markets seem to affect the krone exchange rate asymmetrically, so that falling stock markets weaken the krone more than rising stocks strengthen it.
– The outlook for continued volatile stock markets this year therefore dampens the outlook for the krone, she writes.
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Short-lived Norges Bank effect
Norges Bank kept the key policy rate unchanged at 0.5 per cent last week, and at the same time announced that the interest rate would probably be raised to 0.75 per cent in March.
Several analysts interpreted the signals as a bit on the hawkish side, ie in favor of higher interest rates. After the meeting, both DNB Markets and Nordea Markets were strengthened in their belief that the central bank will deliver a total of four withdrawals this year, one more than the bank itself has in its forecast from December.
Higher interest rates are, all other things being equal, an argument for a stronger krone.
It is also expected that the oil price will remain close to current high levels, DNB reports, which also sees a solid development in the Norwegian economy.
– But as the largest central banks in the world are moving towards a tighter monetary policy this year, the stock markets will still be more volatile this year than last year, writes Borgen Gjerde, and adds:
– This indicates that despite a solid, fundamental backdrop, the krone will have to overcome some strong headwinds to be able to strengthen somewhat more this year.
DNB Markets also believes that the coming rise in interest rates in the US will strengthen the dollar throughout the year.
In 12 months, the brokerage expects the dollar to cost NOK 9.03 and the euro NOK 10.20. It is some around four øre weaker than today’s listing.
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