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FxWirePro: NOK eyes on Norges after inflation prints in line with consensus - Driving forces, hedging and speculative vehicles of EUR/NOK

The situation as regards inflation has improved notably in Norway over the past few months. The rate of inflation has eased from 4.4% in the summer to only 3.5% recently. However, we are unable to sound the all-clear. Consumer prices in Norway rose 3.5 pct YoY in December of 2016, the same pace as in November. The inflation rate remained at the lowest figure since May while markets expected a 3.8 pct gain.

Even though the trend has not accelerated, as had been feared for a while, nor has it weakened considerably. And according to consensus it is printed once again reflect stronger price rises. While trade balance data of December month due for publication today.

So the interesting question remains: Would Norges Bank be willing to tighten its monetary policy if the inflation trend was not going to weaken notably over the course of the year as it is currently forecasting?

We are skeptical in this respect and therefore see only limited positive momentum for NOK as regards monetary policy. Instead, the oil price will remain an important driver.

Driving forces:

The EURNOK forecasts are 8.9 in 1 month and 8.70 by end of Q2’2017.

We could still foresee the NOK as weaker than implied by fundamentals. Higher oil prices should continue to support the NOK going forward.

NOK has failed to catch up with higher interest rate differentials, and we see Norges Bank having come to the end of the easing cycle.

Norwegian importers are advised to hedge using flexible forwards, while exporters are advised to choose 3m forwards.

Alternatively, at spot reference: 9.0775, one can also deploy diagonal credit put spreads by writing 1w (1%) in the money put while initiating longs in 1m at the money put, the structure could be constructed at net credit.

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2017-02-24 21:06:35
0m

February 24 19:00 UTC Released

AREconomic Activity YY*

Actual

-0.1 %

Forecast

-0.6 %

Previous

-1.4 %

February 24 15:30 UTC Released

USECRI Weekly Annualized*

Actual

10.5 %

Forecast

Previous

11.1 %

February 27 00:30 UTC 25032503m

AUCompany Profits Pre-Tax*

Actual

Forecast

Previous

3.6 %

February 27 00:30 UTC 25032503m

AUBusiness Inventories*

Actual

Forecast

0.5 %

Previous

0.8 %

February 27 00:30 UTC 25032503m

AUGross Company Profits*

Actual

Forecast

8.0 %

Previous

1.0 %

February 27 09:00 UTC 30133013m

EZLoans to Non-Fin

Actual

Forecast

Previous

2.3 %

February 27 09:00 UTC 30133013m

ITFlash Trd Bal Non-EU*

Actual

Forecast

Previous

5.68 bln EUR

February 27 09:00 UTC 30133013m

EZMoney-M3 Annual Grwth*

Actual

Forecast

4.8 %

Previous

5.0 %

February 27 09:00 UTC 30133013m

EZLoans to Households*

Actual

Forecast

2.2 %

Previous

2.0 %

February 27 10:00 UTC 30733073m

EZCons Infl Expec

Actual

Forecast

Previous

14.5

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