EUR/NOK likely to decline to 9.20 by 2016-end and to 8.90 by mid-2017

In recent weeks, crude oil prices have dropped steadily after reaching a year-to-day high in early June. The declining oil prices have been mainly responsible for the depreciation of the Norwegian krone. The NOK has depreciated against the euro to around 9.40 from 9.20. It had briefly reached above 9.50 in late July.

However, the flow of economic data has been positive, indicating towards stabilization in Norwegian activity, said Lloyds Bank in a research report. Even if oil prices are anticipated to rebound from the recent decline, the still historically low levels imply that investment in Norway’s oil sector is expected to be subdued.

Overall, this might urge the Norwegian central bank to lower rate one more time, mostly during its meeting in September. The Norwegian krone is already priced to this outlook that is expected to keep the EUR/NOK pair in range bound in the near term. Moreover, waning expectations of additional rate cuts, along with a gentle rebound in oil prices underpin the view of a drop in EUR/NOK to 9.20 by the end of 2016 and to 8.90 by mid-2017, added Lloyds Bank.