NOK/JPY
The Norwegian krone has made an extremely impressive
start to 2012. It was the top performing currency in February, which is largely
due to a combination of domestic economic strength and soaring oil
prices.
Amid worrying developments in Iran, the price of Brent
crude oil is trading at what is more than a three year high of $126 per barrel,
which represents a 15% climb since the start of the year. As a major producer
of oil, the Norwegian economy stands to benefit and by association so too does
its currency.
On a domestic level, Norwegian manufacturing and retail
sector growth and declining unemployment has improved sentiment towards the
NOK, while a widening trade surplus shows that its export sector is not being
hit by the eurozone downturn as other economies are. The Norwegian economy grew
by an impressive 0.6% in the fourth quarter of 2011 and forward looking surveys
are pointing towards a quicker pace of growth in 2012. Amid rising investment
in Norway’s oil and gas sector, growth seems firmly underpinned while other
global economies face a very uncertain year. As such, Norway’s stable,
AAA-rated economy has seen the krone take on the role of something of a
safe-haven currency so far this year.
The only real question mark hanging over the Norwegian
krone is the monetary policy of the Norges Bank. The state of Norwegian
economic growth wouldn’t suggest the need for interest rate cuts but that is
what we have seen today. The Norges Bank has today surprisingly followed its
December rate cut of 0.50% with a further 0.25% cut. With the Norwegian
interest rate currently standing at 1.25%, the krone’s interest rate
differential has clearly been heavily reduced. More significantly though, the
move suggests that the Norges Bank is very concerned with the appreciation we
have seen in the Norwegian krone. A further cut to the base rate this year
cannot be discounted.
Despite the NOK’s sell-off in response to the Norges
Bank’s move today, NOK/JPY has climbed by over 14% from January’s lows of
12.65, to its current level of 14.45. High oil prices and strong growth are
likely to sustain demand for the NOK moving forward. The Norges Bank’s
discomfort with the krone’s appreciation will slow the pace of this pair’s
climb (and regardless, it is highly unlikely that the yen can also maintain its
current pace of depreciation). Nonetheless, NOK/JPY should see gains past 16.00
in the second half of this year.
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