NOK: Vulnerable near term but still set to strengthen in 2018 - Danske Bank
According to analysts from Danske Bank, NOK weakness has materialized and they expect it to continue to year-end. However, they see the NOK strengthening in 2018 on solid fundamentals and project EUR/NOK at 9.60 in 1M, 9.40 in 3M, 9.20 in 6M and 9.10 in 12M.
“Recent data releases out of Norway have been comforting in the sense that they have firmly diminished the downside risks that have appeared since the summer. Manufacturing production has kept up and even if the goods side has levelled off, private consumption remains the key driver of growth. Inflationary pressures remain modest but the October release did show a correction in plane tickets and food prices – factors weighing on inflation over the summer. The biggest risk factor remains the housing market and even though the October release surprisingly revealed a monthly rise in seasonally adjusted terms, details still suggest the fall has further to go. Yet, the October release was comforting in terms of our call for a stronger NOK in 2018.”
“As expected, Norges Bank left the sight deposit rate unchanged at 0.50% at the October meeting. The Board also confirmed the ‘neutral’ stance by noting that ‘the outlook and the balance of risks for the Norwegian economy do not appear to have changed substantially since the September Report’. We pencil in the first rate hike from Norges Bank in Q4 18.”
“Over the past month, some of the NOK weakness we have been calling for has materialised. Recently, the move has been amplified by risk-off and concerns about the Swedish housing market spreading to the NOK. In the near term, we expect the NOK to track risk sentiment, which leaves the currency vulnerable on the weak side at a time of the year when liquidity tends to worsen.”