SEK: Liquidity tailwinds in Q1 – Nordea Markets

Analysts at Nordea Markets suggest that for the weak SEK, if the Riksbank’s expansion of its balance sheet in 2018 was an important driver, then the end of this expansion in March should be SEK-positive.

Key Quotes

“The ~23bn maturity of the SGB1051 in the summer of 2017 was preceded by a move lower in EUR/SEK, and the SGB1052 maturity in March 2019 is more than twice as large (~47bn). Moreover, the likely liquidity surge ahead of the US debt limit may also be good news for the SEK, as Stibor rates may rise further. We thus expect liquidity tailwinds for the SEK in Q1 (sell EUR/SEK on rallies).”

“Beyond Q1 we are not so sure. At the end of 2020, another ~73bn matures on the Riksbank’s balance sheet. If the Riksbank is to follow in the Fed’s footsteps and only let its balance sheet shrink materially when the policy rate has been lifted by >100bp, the Riksbank may opt to pre-reinvest the 2020 maturities. This issue will be discussed at the Riksbank’s February or April meetings. In such a scenario, the Riksbank’s balance sheet would grow even quicker in H1, 2019 than it did in 2018 – bad news for the SEK!”