NOK: Norges Bank Risks Skewed Hawkish

We think the risks to tomorrow’s Norges Bank decision are skewed in a hawkish direction (preview here). Although the rate path is likely to see a downward revision, we don’t expect major changes to the hawkish guidance in the Norges Bank’s policy statement. This would be somewhat at odds with current market pricing, which assigns a ~70% implied probability of a rate cut in December. 

• Such an outcome should provide support to the NOK – at least intraday.
• In NOKSEK, the 50-day EMA at 0.9717 provides the first resistance. Clearance of this level is required to signal scope for a more meaningful recovery, with bearish technical conditions still dominant overall.
• Across the last 13 rate decisions (dating back to January 2023), Norges Bank has consistently elicited a hawkish reaction in the currency. 30 minutes after the last 13 rate announcements, NOKSEK has on average moved 0.3% higher, while EURNOK has moved 0.3% lower. Overnight vols in NOKSEK have climbed to 9.9 points ahead of tomorrow’s decision, pushing the break-even on an overnight ATM straddle to ~40 pips.
• However, should Norges Bank instead open the door to a December rate cut in its policy statement, this would again expose multi-year pivot support at 0.9500 in NOKSEK.