EUR/DKK to stay at 0.74425 on 1-12M - Danske

According to analysts from Danske Bank, the central bank of Denmark did not intervene in the currency market during April. They see the EUR/DKK at 0.74425 during the next 1 to 12 months.

Key Quotes:

“Danmarks Nationalbank (DN) just published April’s FX reserve data and central bank balance sheet. In April the FX reserve declined DKK8.8bn to DKK403.5bn from DKK412.4bn due to the central government’s repayment of foreign debt. In April EUR/DKK dropped sharply towards 7.4400 and thus towards the stronger end of the trading range. The FX reserve data show that DN has not intervened in the FX market by selling DKK to support EUR/DKK.”

“We look for a narrow DKK-EUR money market interest rate spread, tight liquidity in the DKK money market and uncertainty with regard to the outlook for the EU and potentially the EUR around the UK EU referendum on 23 June to support DKK the coming year.”

“We forecast EUR/DKK at 7.4425 on 1-12M and the rate of interest on certificates of deposit (CD rate) to stay unchanged at minus 0.65%. The risk to our forecast is that downwards pressure on EUR/DKK will mount. In such a scenario we look for DN to cap EUR/DKK downside around 7.4350-7.4400 through selling of DKK in FX intervention. FX intervention of around DKK10-20bn will trigger a 10bp cut of the CD rate to minus 0.75% - a level we still view as the lower bound for the key policy rate in Denmark.”