The Norwegian krone has already benefitted in the past few months from being a large energy exporter, but the positive implications for the Norwegian economy are likely there to stay. Therefore, analysts at ING expect the EUR/NOK to edge lower towards 9.50.
“We must remember that, unlike other exporters, Norway’s low hydro reserves makes it prone to a sharp rise in domestic energy costs. There is a non-negligible risk that the country may face a situation where higher costs of living may coincide with wider room for wage increases as investments rise and the job market tightens; the result could be a considerable heat-up of the economy and inflation.”
“We think the growth and inflation outlooks will continue to support the Norges Bank’s tightening plans, which currently imply three hikes in 2022 after the already announced hike in December. We think the risks are skewed towards the central bank overdelivering (four hikes in 2022). Still, even with three hikes next year, a policy rate at 1.0% means that NOK will be at the forefront of benefitting from any revamp of carry trade interest in G10.”
“Our bullish views on NOK rely on the assumption that global tightening cycles will not generate a persistently risk-averse environment in markets next year. Despite this year’s extended downtrend, EUR/NOK is still around 7% overvalued according to our medium-term BEER model, and we see room for a move to 9.50 by 4Q22.”
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