Economists at Danske Bank believe there will be tailwinds to the Norwegian krone from external factors, strong domestics and the possibility of Norges Bank starting to raise rates next year and expect a downward sloping path for EUR/NOK over the coming year projecting 10.40 in twelve months.

Key quotes

“Like those of its peers, the Norwegian recovery is experiencing a setback from new restrictions. That said, restrictions in Norway are far lighter than in most other European countries. We should expect activity and labour market data to level off in the coming months. With a stable to stronger NOK and lower capacity utilisation, we expect inflation to move towards the 2% target in the coming year.”

“In September, Norges Bank reiterated its neutral bias that negative rates are unlikely and that as of now the first rate hike looks set for Q3 22. We see topside risk to this signal and still pencil in the first hike by Q4 21. Markets price the first hike in December 2022.”  

“In our base case, we expect continued support for NOK from the external environment and domestic economic outperformance and Norges Bank to lead the developed world’s hiking cycle. However, the topside seems capped by the oil price, limited potential for further USD weakness and relatively high-cost levels in Norway. In addition, in the very near-term seasonality fears may weigh. 

“We project EUR/NOK at 10.80 in 1M, 10.60 in 3M, 10.50 in 6M and 10.40 in 12M.”