The NOK has been under pressure on the back of unstable risk sentiment and falling Norges Bank rate expectations. Looking ahead, we expect the currency to remain subject to downside risk. After the central bank suggested that there is additional room to ease monetary policy, incoming data will be closely watched.
In particular this week’s business activity and labour data releases will attract attention. However, unless data is surprising considerably on the upside there is little scope of the Norges Bank considering a less dovish monetary policy stance. Elsewhere, it appears that stabilizing commodity price developments have been limiting currency downside. However, geopolitical tensions, which are unlikely to prove a sustainable market driver, have been among the factors keeping oil prices supported.
As a result to the above outlined conditions we remain in favour of selling the NOK, in particular against the USD. This is especially true as improving US growth prospects leave little room for the Fed to turn more dovish anytime soon. Accordingly the pair is likely to benefit from further diverging central bank rate expectations.
CA