Shaken, NOK agitated – Commerzbank

The Norwegian krone has been rocked since the release of the latest inflation figures in early July. Four weeks ago, June inflation surprised lower, putting downward pressure on the NOK as the market clearly speculated that disinflation would finally take hold in Norway, meaning Norges Bank could cut its key interest rate earlier, Commerzbank’s FX strategist said. notes Volkmar Baur.

Significant gains are difficult for NOK

“Today we will probably be able to assess this better as the data for July will be released. Overall, however, it should be noted that inflation of 2.6%, and especially the base rate of 3.4%, are still well above Norges Bank’s target of 2%. Monthly rates of change in trend are also still too high to warrant a quick return to the inflation target. Therefore, I think it is quite justified for Norges Bank to be cautious with the first rate cuts.”

“But it’s not just the latest inflation numbers that have rattled the NOK. Risk aversion and the price of oil did the rest, as did the fact that the potential for interest rate cuts plays a role in a currency’s performance when risk aversion rises. And with a key interest rate of 4.50% from the end of 2023 and Norges Bank continuing to sound tight, the NOK naturally suffers especially in such phases.”

“If the inflation figures for July show that Norges Bank is right in its assumption that inflation will remain high for longer, the market could regain more confidence in Norges Bank’s restrictive stance, especially as it holds its rate meeting next week. However, I must admit of course that in the current uncertain and risk-averse market environment, significant gains are difficult for NOK.”