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Markets Watch Several Factors That Could Cement NOK Bounce

NOK
  • While convincingly remaining the poorest performer in G10 YTD, NOK is over 4% off cycle lows vs. The USD and near 2% off the lows vs. The EUR this week. NOK has benefited from the bounce in the oil price, the relative stabilisation of the financial stability backdrop and retracing expectations of tightening from the Fed, ECB relative to the Norges Bank in March.
  • Markets watch several factors for possible further strength in the NOK, namely the next wave of corporation tax payments (due April 15th) as well as this Friday's FX purchases update from the Norges Bank. SEB write that the Norges Bank will lower FX purchases further from current rate of NOK 1.7bln due to lower than expected oil & gas prices and a higher non-oil budget deficit and could eventually switch from NOK selling, to NOK buying in the coming months.
  • Conversely, Danske Bank write that they continue to favour playing NOK rallies tactically, as markets once again look set to re-price Fed rate hikes, which provides headwinds for NOK. They add that while they remain longer-term bullish NOK, they emphasize the attractive returns of short NOK positions, which acts as a hedge for any risk-off backdrop.
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