Is the Norwegian krone getting orange fever?

Norway's central bank is leading the way in raising interest rates and the Scandinavian country is benefiting from high energy prices. Still, the Norwegian krone has been under some pressure in the last week - and that has nothing to do with the game against the Orange.

While the United States is cautiously working towards a first rate hike, Norway has already had it for a while. A day after the Federal Reserve announced that it would slightly reduce its stimulus measures, the Norwegian central bank even made a substantial advance on Thursday morning for a second rate hike in December.

Three more of these types of interest rates are in the pipeline for 2022. This puts Norway ahead of almost all other countries in the developed world. This is partly due to the strength of the economic recovery. The country's economy is estimated to grow by 3,9% this year. The expected growth rate for next year is even 4,5%.

Rising interest rates, higher oil price
Rising interest rates often create a tailwind for the value of a currency. This makes it more attractive for large financial parties to hold assets in this currency. Just like savers prefer to store their money at a bank with a high interest rate. In addition, the country is a major energy exporter. Exports of oil and natural gas account for more than 40% of the total Norwegian export value. And the price of a barrel of Brent oil has rocketed from less than $40 to more than $80 in the past 2 months. Despite rising interest rates and growing oil revenues, the Norwegian krone has fallen XNUMX% against the euro over the past week.

Netherlands - Norway
Are currency traders already preparing for a tough evening for Norway in the potentially decisive game against the Netherlands, which will be played in Rotterdam on Tuesday evening, November 16? In reality, an important reason for the step back is that the crown has already had a significant rebound. In the two months before the flip, the Norwegian currency has gained 7%. And since a low on March 22, 2020 – in the middle of the corona panic EURNOK then briefly noted 12.50 – that gain is even 30%. Only if the Norwegian bank hints at more interest rate hikes or if the oil price rises even further, the currency will receive a new impulse.

Inflation and slowing growth
In the absence of such new impulses, however, the crown is a plaything of sentiment in the financial markets. Lately, the mood has been increasingly dominated by concerns about stagflation. If the growth of the world economy cools, this will lead to lower energy consumption. Oil and natural gas revenues will then come under pressure and traditionally safe currencies such as the Swiss franc and the dollar are more popular in the currency world. Concerns in the financial markets are being fueled for the time being by reports of rising inflation, such as the news from Statistics Netherlands that Dutch inflation has reached its highest level in almost twenty years. As long as that doesn't change, the Norwegian krone will have a hard time.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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