EUR/NOK: Krone set to rebound from undervalued levels – MUFG

During August the krone strengthened against the euro from 10.477 to 10.268. As economists at MUFG Bank note, NOK undervaluation has started to reverse.

Norges Bank to hike rates this month

“The correlation between daily % changes in the price of oil and USD/NOK has become stronger at -0.71 over the past month. However, the krone has proven resilient to those concerns suggesting that a lot of bad news has already been priced in.”

“The krone is undervalued and is more likely to strengthen in the year ahead as the global economy continues to recover.”

“The krone should continue to benefit as well from the Norges Bank’s plan to tighten policy well ahead of the ECB and Riksbank.” 

“At their latest policy meeting, the Norges Bank confirmed that they will follow through with plans to begin raising rates in September and at every quarter in the year ahead. We expect a second rate hike to be delivered in December.”

“The widening yield spreads in favour of Norway should encourage a stronger krone.”