Articles
19 December 2019

Norges Bank supports attractive NOK prospects

The Norges central bank stayed on hold today but the Bank’s interest rate forecast does not rule out a hike in 2020. NOK is our top European G10 FX pick for the early part of 2020. We target the EUR/NOK 9.80 level

Not ruling out a hike in 2020

The Norges bank did not deliver any surprises today. The widely expected decision to remain on hold was accompanied by the largely unchanged interest rate forecast, where the central bank still pencils in a probability of a partial rate hike next year (albeit the timing of the possible partial hike was moved from the first quarter to the second quarter of 2020).

The interest rate path for 2H21 has been marginally upgraded higher too. The unchanged / very marginally higher interest rate outlook reflects the growth and CPI forecasts for the next three years which were either unchanged or very modestly upgraded. In short, no big surprise and the Nordic central bank may still raise interest rates next year if the domestic economy does well and NOK is not overly strong.

Figure 1: NOK tends to do strongly in January

 - Source: ING
Source: ING

NOK: Standing out in the European G10 FX space

We have seen a positive NOK reaction to the decision today, largely because the unchanged prospects of a partial rate hike in 2020 and the currency’s attractiveness on the carry - valuation matrix makes it stand out in the European G10 FX space. EUR/NOK is trading below the 10.00 psychological level for the first time since early October this year.

With risk appetite stabilising on the back of an improvement on the US-China trade front, we see NOK as the most attractive European G10 currency at this point and going into 2020.

Solid carry, seasonal NOK strength in January (Figure 1) and cheap valuation all suggest the krone’s outperformance early next year. On a regional basis, we prefer NOK to SEK as the former screens better on the carry-valuation basis. We target the EUR/NO 9.80 level by end-January 2020.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).