Snippets of Scandinavian FX Radar on Swedish Polls and Norges Hiking Hopes

Swedish Krona rebounded slightly, Norwegian Krone weakened further last week. Risk sentiment remains key. As Norges Bank hikes next week, fundamentals will gradually become more significant. 


Is the SEK market meant to be happy now as not every fifth Swede (as the polls had predicted) voted for the far-rights in yesterday’s parliamentary elections but “only” just below 18%? Even if many have repeatedly played down the election it would have been a game changer for the krona in my view if the “Sweden Democrats” had become part of the government. However, it does not look as if that was going to be the case at present. Not because they only became the third strongest party. 

On the contrary, but probably the centre-right Alliance would not hold a majority in the Riksdag if they were to get support from the far right. In that case the Centre Party would probably leave the Alliance. Its refusal to cooperate with the “Sweden Democrats” in any shape seems credible - contrary to the position of its Alliance partners from the “Moderate Party”. Without the Centre Party – and that is the truly SEK-positive aspect of this election result – the Alliance would not hold a majority in parliament even with the support of the far right. Yes, the generally accepted truism applies: the formation of a government will become difficult. However, that was predictable and is therefore hardly market-relevant.

There was little respite for the NOK last week. The trade weighted krone (I-44) weakened by 0.8%, driven largely by the movement against the Swedish krona. This marks a clear break in the trend seen through most of August, when SEK and NOK moved largely in tandem. 


While selling pressure in SEK from time to time has led to selling pressure in NOK as well, we believe the most important reason why SEK and NOK moved in tandem through August was the overall decline in investors’ risk appetite, due to the turmoil in emerging markets. While SEK got a break from this driver last week, continued decline in risk appetite along with falling oil prices from mid-week, as well as weaker-than-expected housing prices in August, led to continued NOK selling. 


Contemplating the current market circumstances, readers are excused to overlook that so far this year, the NOK has essentially reinforced marginally against the euro, while the SEK has been the most heavily sold G10 currency. It is down almost 7% against the euro and 10% against the US dollar. Last week, investors obviously found the need to pair back some of their SEK selling so far this year, and did so against the NOK. As a result, NOKSEK fell almost 2% through the week, while EURNOK was up less than 0.4%.

Overall, the developments in the recent past emphasize that the NOK remains out of favour with investors, but this has more to do with the overall weakness in risk sentiment, rather than a fundamental cynicism regarding the outlook for the Norwegian economy and Norges Bank’s intention to hike rates.

Hence, we reckon that Norges Bank’s objective to hike rates beyond the lift-off in September will trigger some renewed interest in the NOK going forward. Exactly when this will happen is less certain, but as growth and inflation data continue to paint a picture of a solid economy, and oil prices remain in the 70-80 USD/barrel range, we think Norges Bank’s lift-off next week, together with a fairly upbeat assessment of the economy, eventually will convince investors of their direction, and that NOK sentiment will gradually improve as a result. Courtesy: Commerzbank

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