NOK/JPY Overview and Outlook for 2012

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 this week. The Norges Bank has surprisingly followed its December rate cut of 0.50% with a further 0.25% cut. With the Norwegian base 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 minor sell-off in response to the Norges Bank’s move this week, 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.

Richard Driver
 
Currency Analyst
 
Caxton FX

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There are two pieces of bad news from the UK economy, after what has been a pretty good run of positive headlines. Ratings agency Fitch has warned that it may downgrade the UK’s AAA credit rating in the next two years, revising down its outlook to negative. UK unemployment figures were also poor yesterday but sterling is standing up reasonably well for now.


After what could be a quiet morning, this afternoon brings some important manufacturing figures from the US.

STERLING/EURO: Weak UK claimant count data has stalled this pair’s climb past €1.20.

STERLING/US DOLLAR: Sterling remains under pressure against the USD, which is very well bid amid impressive data.

EURO/US DOLLAR:  This pair continued to creep down lower and today’s US manufacturing data may add further weight.  

EURO/US DOLLAR:  This pair continued to creep down lower and today’s US manufacturing data may add further weight.  

STERLING/AUSTRALIAN DOLLAR: This pair continues to climb as sentiment remains weak towards the aussie dollar.

STERLING/NEW ZEALAND DOLLAR: Sterling found some easy gains against the kiwi dollar yesterday, despite some excellent NZ manufacturing data.

STERLING/CANADIAN DOLLAR: The 1.55 level is providing some support at these low levels against the Canadian dollar.