How India’s economy has fared under ten years of Narendra Modi 
The yen plunges to 34-year low despite interest rate hike 
Why the government’s haste in changing the health system could come back to haunt it 
Video games at work? It sounds fun, but there are ethical risks 
After Iran’s attack on Israel, is a devastating regional war next? 
Mexico’s slow slide towards vigilante violence 
Why doesn’t my digital music feel like ‘mine’? Three ways digital possessions reduce our sense of ownership 
‘They don’t have enough’ – schools in England are running food banks for families 
A new wave of wearable devices will collect a mountain on information on us 
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.
