USD/NOK drops heavily to near 10.40 on surprise OPEC+ production cut

• USD/NOK has delivered a gap-down open near 10.40 after a surprise oil production cut by OPEC+.
• Fresh pledge of cutting overall oil production by 1.16 million bpd has led to an overall cut of 3.66 million bpd.
• The odds for a further 25bp rate hike by the Fed remain solid despite softening of the US PCE Price Index.

The USD/NOK pair has witnessed an intense sell-off in the Asian session as investors discount the impact of the surprise drop in oil production announced by Saudi Arabia and other OPEC+ members. The oil cartel will cut the overall oil production by around 1.16 million barrels/day, which has strengthened the Norwegian Krone. Fresh pledge of cutting overall oil production by 1.16 million bpd has led to an overall cut of 3.66 million bpd.

The surprise move by OPEC+ in an attempt to support the oil price has strengthened the currencies of oil-exporting countries, which will receive more funds on exporting oil. Bloomberg reported that the surprise move by OPEC+ would increase the risk of higher inflationary pressures globally and might force central banks to keep policy rates higher for longer.

Meanwhile, S&P500 continued its winning spree on Friday in hopes of no further casualties to the United States banking sector, portraying a risk-on mood. However, fresh oil production cuts could spoil the market mood ahead, therefore, a cautionary approach would be advisable.

The US Dollar Index (DXY) recovered firmly on late Friday to near 102.60 despite more-than anticipated softening of US core Personal Consumption Expenditure (PCE) Price Index data. On a monthly basis, the US PCE Price Index accelerated by 0.3%, lower than the consensus of 0.4% and the former release of 0.5%. Also, the annual US PCE Inflation figure soften to 4.6% from the consensus and prior release of 4.7%. However, the move has not eased expectations of further 25 basis points (bps) rate hike by the Federal Reserve.

As per the CME Fedwatch tool, the odds for a 25bp rate hike to 5.00-5.25% for May monetary policy meeting stand more than 53%.