SEK monthly currency outlook (1-3 month)

SEK performed strongly in September, rising against all G10 currencies despite the generally negative tone for risk in the month and SEK's traditional status as a risk proxy. The apparent reversal of SEK's relationship with general risk appetite is largely a consequence of the fact it trades as a satellite of EUR, which has itself assumed the qualities of a safe-haven currency. 

The dangers for SEK are that either markets turn risk-seeking, reversing gains, or much more severely riskoff, calling into question EUR's (and with it SEK's) status as a safe-haven. Moreover, EUR/SEK is now close to the levels (9.20-9.30) that have caused the Riksbank to openly talk the currency down and to ease domestic policy to reverse currency strength. 

The  Riksbank's heightened sensitivity to headline inflation heading into next year's wage negotiations (see below) and recent SEK strength suggest this risk is more likely to rise than fall from current market pricing (Figure 1). EUR/SEK is likely to base around current levels (9.35) and push back to the top of the recent range around 9.60, says RBC Capital Markets.