EUR/NOK to hit 10.40 as krone weakens, shrugging off Norges Bank rate hikes – Danske Bank

In Norway, economists at Danske Bank now expect 5 hikes by the end of 2022. Notwithstanding, they stick to the view that EUR/NOK is set to move towards higher as relative rates matter less than the direction of the dollar and global reflation.

Peak reflation to weigh on NOK despite NB rate hikes

“While higher NOK rates in isolation are supportive of a stronger NOK we still highlight that relative short-end rates are an inferior driver of NOK relative to the global reflation theme.”

“The biggest risk factors to our forecasts lie in the global reflation theme and thereby not least USD real rates, risk appetite, oil and vaccine rollouts. Better news and/or a more patient Fed than in our baseline would support reflation underpinning a continued strengthening of NOK. On the other hand, marked risk-off could trigger a larger-than-projected setback”

“As we now expect 5 hikes by end 2022 we lower our EUR/NOK forecast profile slightly but stick to the view that cross is set to move higher over the coming year on peak reflation. We forecast the cross at 10.20 in 1M (previously 10.10), 10.30 in 3M (unchanged), 10.40 in 6M (unchanged) and 10.40 in 12M (10.50).”