NOK: Slipping well below fundamentals – Nomura

The analysis team at Nomura thinks that recent NOK weakness is over-done, and have entered short EUR/NOK positions through a 2m 9.25/9.10 put spread.

Key Quotes

“We do not believe the modest decline in Norway’s terms of trade justifies current levels of NOK. Moreover, we think the balance of risks favours oil prices moving higher from these levels, with extended production cuts from OPEC likely to provide a floor to crude oil prices. Furthermore, we argue the pace of US production increases should slow and the global demand backdrop remains healthy.” 

“Growth momentum in Norway remains sturdy and we expect the next move in interest rates will be upward, likely towards end-2018. Medium term, this is NOK supportive. There are some downside risks from the weak inflation outlook, which may see Norges strike a dovish message at the June meeting. Nonetheless, EUR/NOK has diverged from its rates differential, and we expect near-term the market to focus more on growth releases (oil investment survey, regional network report) where we continue to see upside risks.”

“We expect these factors to drive EUR/NOK towards 9.05 by end-Q3, before more moderated appreciation until the market starts to focus on hikes in end 2018.”