The Norwegian Krone meandered along the middle of major currency road Tuesday but could accelerate through the 2021 rankings this summer as Europe frees itself from a coronavirus vaccination mire, a global economic upswing lifts oil prices, and the Norges Bank raises interest rates before any of its peers.
Norway’s Krone Performance
Norway’s Krone advanced on many European counterparts Tuesday but lagged the oil-linked Canadian Dollar as well as the Australian and New Zealand Dollars, which gained tepidly as the U.S. Dollar struggled to maintain the near-universal upward momentum seen so often over recent weeks.
Price action furthers the 2021 trend. The Krone has lagged its ‘high beta’ counterparts from the Anglosphere, but this merely adds to the upside that could be seen over the coming months, especially if summer ushers in with its increased momentum in Europe’s coronavirus vaccination program.
“The stronger-than-expected economic recovery thanks to the effective lockdown strategy, fiscal support, and higher oil prices have supported Norges Bank’s hawkish monetary policy and thus the NOK. But the further recovery might see headwinds amid the third Covid-19 wave, tighter restrictions, and relatively slow vaccination progress,” says Yuan Cheng, a strategist at Natwest Markets. “The NOK has been tracking oil and the rally in oil prices.”
Cheng and the Natwest Markets team forecast that 2021 strength in the Norwegian Krone will push USD/NOK back to 8.27 and EUR/NOK to 10.05 by June, ahead of further gains into year-end, but acknowledged this week that the third wave of coronavirus infections in Europe leaves it dependent on oil prices for further upside in the short-term.
Rising coronavirus infections and a resulting strengthening of containment measures come with Europe’s economic recovery prospects already marred by vaccine procurement troubles. They have further undermined investor appetite for many of the continent’s currencies.
The Krone would benefit from any Organization of Petroleum Exporting Countries (OPEC) decision on production arrangements favorable for prices this Thursday, which would require the cartel to eschew further increases in output.
“Extended output cuts are possible, which could send oil prices higher,” says George Vessey, a currency strategist at Western Union Business Solutions. “The giant container ship that was blocking the Suez Canal was freed yesterday, allowing the hundreds of vessels carrying oil, livestock, and many more goods to continue traveling finally. The incident could disrupt global trade further though as congestion issues are expected to hit Europe and Asia ports.”
Thursday’s OPEC decision is a wild card for oil-linked currencies, but once beyond there. The Norwegian Krone will be a contender for outperformance in April, a month in which it has a lengthy track record of appreciation against the U.S. Dollar and outperformance of many major peers.
“April starts with a good month for selling the USD, with GBP, NZD, and NOK generally the outperformers. Probably tied to this is that April is also a strong month for equities and oil prices,” says Jordan Rochester, a strategist at Nomura. “These are just the most obvious and FX-related seasonal trends which we have observed.”