NOK
- NOK holds among the poorest performing currencies in G10 this year, with poor YTD returns coming despite underpinned global risk sentiment, favourable terms of trade and high real & nominal rates relative to regional peers.
- There remain key structural headwinds to both the economy and the currency, that are likely compounding medium-term weakness.
- One factor is the upward trend in the net stock of foreign direct investment (i.e. Norwegian FDI abroad), which accounted for 9% of GDP in Q3 2024.
- This certainly factors into market prices over the medium term, with other drivers cited among the sell-side including poor competitiveness and the underperformance of the energy sector (i.e. disincentivising foreign investment into Norway). The Norges Bank themselves note that the "decline in the importance of the petroleum sector has pulled in the direction of a gradual exchange rate depreciation” since the beginning of the 2000s.
- More broadly, Norway’s net international investment position reached a new all-time high of NOK 18,777bln in Q3 (365% of nominal GDP vs 343% in Q2), reflecting the increased value of portfolio investments by the Government’s pension fund (GPFG), which exclusively invests abroad and has benefited from the surge in global (and particularly US) equity prices this year.
- However, Government petroleum revenues are mostly received in FX (meaning purchases of foreign assets by the GPFG do not necessarily reflect a NOK-negative flow).
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