EUR/NOK likely to trade around 8.80 by mid-2017, says Lloyds Bank

The Norwegian krone has depreciated in the past month since hitting a year-to-date low in early October. It pushed the EUR/NOK pair back above 9.0. Sharp fall in the price of oil has mainly driven this move in the currency pair, noted Lloyds Bank in a research report. The front-month Brent crude fell from around USD 54 per barrel to around USD 46 per barrel as uncertainty regarding the likelihood of oil production cuts by OPEC continue to weigh on the oil price outlook.

In the near term, the prospect of certain stabilization in the oil price, along with a rebound in mainland GDP growth in the fourth quarter, should provide certain support to the Norwegian krone, stated Lloyds Bank. On a longer-term prospective, the Norwegian krone continues to be fundamentally undervalued.

Still, with Norway’s economic growth expected to be affected by subdued capital spending in the oil and gas sector in the second half of 2016, the EUR/NOK pair is expected to stay relatively range bound into year end. However, waning expectations of further reductions in interest rate and a likely rebound in oil prices are anticipated to lead to a steady decline in the currency pair to 8.80 by mid-2017, added Lloyds Bank.