EUR/NOK expected to drop further in 3-6 months – Danske Bank

The cross is expected to ease further ground in the next 3 to 6 months, suggested Chief Analyst at Danske Bank Allan von Mehren.

Key Quotes

“In terms of the NOK, we still think the market is too complacent in terms of near-term Norges Bank (NB) easing (rate cut or NOK liquidity action)”.

“Currently, markets are pricing in close to a zero probability of monetary easing over the coming month whereas we see risks being much closer to 50/50”.

“In June, NB ‘promised’ a September rate cut but the latest housing market reports and the July inflation print drove a full NB repricing over the summer – even at a time where SEC regulative changes in the US resulted in an implicit monetary tightening in Norway”.

“Friday’s CPI inflation print showed that the one-off effects in the likes of food and not least airfares, which drove the spike in July, fell out and, consequently, market focus could quickly turn to an unpriced risk of NB easing should tomorrow’s Regional Network Survey disappoint”.

“Also, the NOK is now close to 2% stronger than NB forecast back in June, which from an historical perspective alone would suggest a 12-15bp lower rate path. In summary, while we still expect EUR/NOK to trade lower on a 3-6M horizon, we see the near-term risks skewed to the upside for the cross”.