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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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July 21 14:30 UTC Released

USECRI Weekly Annualized*

Actual

144.8 %

Forecast

Previous

2.4 %

July 21 14:30 UTC Released

USECRI Weekly Index*

Actual

2.6 %

Forecast

Previous

143.9 %

July 24 00:30 UTC 15491549m

JPForeign Direct Investm't*

Actual

Forecast

Previous

52.4 bln $

July 24 07:00 UTC 19391939m

FRMarkit Serv Flash PMI

Actual

Forecast

56.7 %

Previous

56.9 %

July 24 07:00 UTC 19391939m

FRMarkit Mfg Flash PMI

Actual

Forecast

54.6 %

Previous

54.8 %

July 24 07:00 UTC 19391939m

FRMarkit Comp Flash PMI

Actual

Forecast

56.4 %

Previous

56.6 %

July 24 07:30 UTC 19691969m

DEMarkit Service Flash PMI

Actual

Forecast

54.3

Previous

54.0

July 24 07:30 UTC 19691969m

DEMarkit Mfg Flash PMI

Actual

Forecast

59.2

Previous

59.6

July 24 07:30 UTC 19691969m

DEMarkit Comp Flash PMI

Actual

Forecast

56.3

Previous

56.4

July 24 08:00 UTC 19991999m

RUMarkit Mfg Flash PMI

Actual

Forecast

57.2 %

Previous

57.4 %

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