– Some missing puzzle pieces – E24

A weak krone means that Norwegians on vacation get less of their krone, but according to DNB Markets, krone won’t return to the old highs right away.

This is how the crown is on Monday night:

• One dollar costs 9.80 kroner, while it cost 8.48 kronor five years ago and 6.05 kroner ten years ago.
• One euro costs 10.37 crowns, compared to 9.54 crowns five years ago and 7.54 crowns ten years ago.

Last week, Norges Bank made its biggest rate hike in 20 years, but it had surprisingly little impact on the krone, according to currency strategist Magne Østnor at DNB Markets.

– I’m surprised that the krone didn’t solidify a little more on Thursday, and that other days weren’t marked by more krone sales, Austenor tells E24.

– But he added that this happened in a climate where growth prospects are generally deteriorating, which often dampens appetite for the krone.

Ostnor notes that there is an increased risk of a global recession. However, there have been little changes in the foreign exchange markets recently, and the central stock markets have turned upwards in recent weeks.

He pointed out that this may be due to the fact that investors had to rebalance their investment portfolios at the end of the second quarter.

“I have a feeling there are some puzzle pieces missing here,” Austenor says.

“I don’t want to rule out that there will be a certain impact of investors having to rebalance their portfolios at the end of the quarter, so it’s probably a bit early to make a judgment that this will be the case for the krona going forward,” he says.

Expect 10 kroner euro

DNB Markets believes in a certain strengthening of the krone in the coming months. They expect the oil market to tighten in the second half of the year, and that higher oil prices will support below the krone. The bank believes that the value of the euro will be 10.00 NOK within three months.

On Thursday, the Norges Bank raised the interest rate by 0.5 percentage point, which is twice the normal rate rise of 0.25 percentage point. However, that wasn’t enough to bring out the krone, according to Ostnor.

Several other central banks have raised interest rates a lot lately, such as the US Federal Reserve, which recently raised rates by 0.75 percentage points.

– The fact that Norges Bank had exited early in the withdrawals was for a period of time an important driving force for the strengthening of the krone. Ostnor says other countries have now put us in well, and may have contributed to the weakening of the krona in the past two months.

The euro was at 9.43 crowns when the krone was at its highest level in April, while the krone reached its highest level against the dollar at 8.55 krona at the end of March. Since then, the krone has weakened a lot.

– Now you feel more uncertainty, and then can’t get help from Norges Bank’s increase, especially when they collect less than many other central banks, says Austenor.

– It might take some time

Ostnor expects that it will take some time before analysts can form an opinion on how strong the brakes on growth will be.

Consumer confidence has been weak for a long time in many countries, but it will likely take some time before it translates into a decline in consumption, he says.

Ostnor points out that interest rates are going up, and people should expect higher inflation and more expensive energy than they used to. Meanwhile, it’s vacation time, and the latest jump in interest rates will increase mortgage interest costs in just six weeks, that is, in August.

—So we are suddenly a good distance away in the fall before we can say with any certainty how much this will slow down, says Austenor.

One of the biggest risk factors

DNB Markets cares more than Norges that higher interest rates can contribute to a downturn in the economy. While Norges Bank estimates that the key rate will peak at 3 percent next summer, Austenor expects a peak of 2.75 percent in early 2023.

Is there a risk that people will not tolerate interest rate hikes?

Norges Bank says this is one of the biggest risk factors for their outlook, says Austenor.

He notes that Norges Bank has its own framework in monetary policy report They describe household debt and how interest rates will affect different income groups. There, the bank is trying to assess how sensitive people are to higher interest rates.

The DNB analyst is also unsure whether Norges Bank will reach its unemployment estimate.

– The bank is also optimistic about the labor market and expects only a few tenths of an increase in unemployment. He says it’s a reasonable idea that some labor migration won’t return and the job market will be tight despite the low growth rate, but that’s not certain.

I think the krone is affected by interest rates

– The krone has not strengthened much, despite the sharp rise in oil prices. What happened to the relationship between the krone and the price of oil recently?

– He hasn’t been this strong in recent months. Ostnor says it probably had a lot to do with changes in global interest rates, for example, the Federal Reserve, the European Central Bank, the Riksbank.

– It is partly due to the market turmoil, the stock market fell so much that the krone snowball effect began, because the Norwegian managers are forced to sell the krone. This also coincided with the time Norges Bank calibrated its daily transactions and began selling krona, he says.

In the years of low oil and gas prices, the Bank of Norway sold international currency and bought kroner to transfer money to cover central government expenditures on the central government budget. This year, energy prices rose so much that the country turned a profit, then Norges Bank instead sold the kroner and bought the currency.

– You shouldn’t rule out anything

Austenor sees no immediate signs that the krone will return to the levels it was in ten years ago, when it was much stronger than it is today.

– A crown not too far from where we have it today is what we have to reckon with in the short term, says Austenor.

– Is this the new normal, or can the krone fall again at 7-8 kroner against the euro and the dollar?

We will not rule out anything in the foreign exchange market. That could very well happen, but then perhaps we should expect some transformation of a structural nature, he says.

What is more clear, he says, is whether there has been an investment wave in Norway related to the green turn, as foreigners have increased their direct investment, and there has been an improvement in terms of trade with other countries.

– He can give such a transformation to the crown. But then hundreds of billions of kroner must be invested, says Ostnor.