EUR/NOK likely to be at 9.00 by end 2016

NOK's short term moves are dictated by oil, but long term outlook depends on oil prices' lasting effects to domestic drivers. NOK is down nearly 30% in import weighted terms since early 2013.

In real trade weighted terms, NOK is at its lowest for over 50 years. Ongoing NOK depreciation persists to underpin inflation though slow growth and lower once the foreign exchange effect starts to fade.

However the size of hit to NOK looks exaggerated when Norway's solid fiscal position and capacity will support domestic growth. Fiscal easing has been limited so far but there are pick ups in 2016 on current budget plans and there is scope of further fiscal easing if the effects of commodity prices are bigger than expected.

"Even though we put a low weight on valuation as a factor driving medium-term FX returns, it is hard not to be cautiously constructive on currency over a longerterm horizon. EUR/NOK should drift lower once oil prices find a stable floor. Our end-2016 EUR/NOK forecast is unchanged at 9.00", says RBC Capital Markets in a research note.