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Why is the Norwegian Krone Struggling Despite Its Strong Economy?

The Norwegian economy appears to be continually strengthening whilst the Eurozone economy seems to struggle with many unsure or how effective monetary policy is in the area. The Euro which has experienced a bout of weakness due to recent political scenarios in Italy has allowed the NOK to strengthen against the single currency. Despite this many feel that the Krone should push higher against the Dollar, in part fuelled by oil prices.

winter town in Norway

Oil prices linked to the Norwegian Krones Exchange rate

Historically correlations between the Norwegian and oil prices were easy to strike. As a commodity currency, the Krone pricing is closely linked. However last year uncharacteristically the Norwegian Krone and Canadian Dollar began decoupling from crude oil pricing.

Analysts now believe in the last few weeks that these currencies will begin to track crude oil prices again. Many believe that the Norwegian currency is set to appreciate following rising oil prices which exceeded the $72 Dollar mark in the final weeks of March.

US oil prices on June 5 2018

Despite a fall in oil prices this week due to growth in drilling and production experts believe that drilling won’t be able to keep up to speed with demand and many believe prices will rise once again. The price rise almost inevitably will see commodity currency prices rise.

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Recently Italian political uncertainty

Political unrest which has only been resolved following the formation of a coalition between the League and Five-star party. The Euro had weakened following weeks of political uncertainty in Italy.

In recent days the new Prime minister has been sworn in which will arguably add better stability to the Euro and by default the Norwegian Krone.

Giuseppe Conte took an oath on Friday, just a few days after an agreement was reached between the Five star and Right-wing League party.

The new Eurosceptic Italian government will undoubtedly be viewed with angst from leaders such as Macron and Merkel whose economies could arguably suffer if Italy was to follow the path of the UK and hold a referendum on EU membership.

The European Union will also undoubtedly be keen to ensure Italy the 4th largest EU economies remain an integral part of the union.

Norwegian economy pushes ahead

The Norwegian economy continues to go from strength-to-strength with its non-oil deficit, a key public spending indicator estimated to stand at 225 Billion Norwegian Crowns down by roughly 5.6 Billion crowns when from last October.

Whilst the economy naturally has a dependency on oil production and sales, non-oil-based growth exceeded target this quarter showing an increase of 0.6% against an anticipated 0.5% growth.

The continual growth has investors to expect a rate rise before the end of the year. Currently, the Norwegian interest rate sits at 0.5% and investors expect the rate rise to happen in September, which with many central banks remaining non-committal on future rate rise this should, in turn, assist the Norwegian Krone.

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Norwegian Krone performance against the Euro and USD

The Norwegian Krone has struggled against the Dollar despite the recent gains in oil prices. The month high for USD to NOK being 8.3105. This rate was the weakest the Krone has been against the Dollar this year. The Krone has regained some strength against the dollar since the beginning of the week and the pair closed the weeks trading at 8.1853. The commodity currency assisted by weaker than expected US preliminary GDP figures.

USD/NOK exchange rates on June 5 2018

Whilst Norwegian Krones continues to struggle against the Dollar it has had no such issue capitalising against the Euro over the last few months.

EUR/NOK exchange rates on June 5 2018

The Euro which has struggled during the Italian election and coalition negotiations is to enjoy gains against many currencies continues to lose pace with the Krone. The last 6 months seeing the commodity currency gain against the Euro, the single currency falling from 9.9870 to a low seen last week of 9.4624 against the Norwegian Krone.

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