Oil prices to drive NOK in the near term

Weaker oil price will continue to drive the NOK in the near term but against that accommodative fiscal and monetary policy will help the economy to grow. Total GDP is expected to expand 1.6% in 2016, which is up 0.1 % points from last month's forecast. In 2017, the market sees the economy growing 1.7%. Mainland GDP growth excluding oil drilling activities, is expected to grow 1.4% in 2016 and 1.9% in 2017. 

On the other side, free fall of oil price has put pressure on the fiscal balance and in addition it is negative for the NOK as the country shifts toward being a consumer of oil revenues. Such situation is forcing the Norges to step up its foreign exchange selling on behalf of the government equivalent to NOK 900 m/d for February 2016.

According to Barclays research, EUR/NOK long position is preferable. While on a long term perspective, Barclays expects a correction lower as oil rebounds and the Norges reaches its lower bound for rates, which will be around 0.5% because of financial stability considerations.