NOK: Tracking Signals – Rabobank

Norges Bank is adopting inflation targeting relatively recently. Before 2001, it had a very long history of exchange rate targeting in various systems, the most recent of which was a managed float of the NOK against its main trading partners, notes Jane Foley, FX strategist at Rabobank.

EUR/NOK pullback to the 11.60 area is possible

“The NOK has remained weak over the summer and the CPI inflation rate remains above target. Ahead of this week’s meeting, a Bloomberg survey of economists shows a unanimous expectation of steady policy. This would make Norges Bank one of the most aggressive central banks in the G10.”

“Given Norges Bank’s exchange rate sensitivity, we assume Wolden Bache will use guarded language at this week’s policy meeting to avoid triggering another exchange rate selloff.”

That said, poor liquidity, Norway’s strong relationship with the oil sector and thus the complex implications of the energy transition indicate that the outlook for the NOK is far from straightforward. Even so, we expect the NOK to draw some support from Norges Bank’s relatively shaky position and pull back to the EUR/NOK 11.60 area on a 3-month view.”