• EUR/DKK likely to fall to 9.00 within a year, says Danske bank

    Source: FxWire Pro - Commentary / 15 Jun 2017 04:19:31   America/New_York

    The krone has fallen relatively far since mid-February despite growth in the Norwegian economy surprising to the upside. Slightly lower inflation than anticipated may have fuelled expectations of Norges Bank having to cut interest rates further, but otherwise it seems that the krone has fallen mainly as a result of external factors.

    Naturally the drop in oil prices has been one important factor in the krone’s depreciation. Ever higher production and rig counts in the US shale oil industry have prevented oil stocks from falling as far as many had predicted. A glut of oil has therefore put pressure on prices despite OPEC extending its production cuts through to Q1 next year.

    A weaker growth outlook in China has also sown the seeds of doubt about the future strength of demand for oil. The combination of the two has pushed the price of oil below USD 48/bbl. There has also been general pressure on all commodity-based currencies, including the Canadian, Australian and New Zealand dollars, which have fallen more or less as far as the krone in recent months.

    "Given these external factors, we do not anticipate any immediate rally in the krone despite being more optimistic about the domestic economy. In the slightly longer term, though, we expect the combination of slightly higher oil prices and growing expectations of rate increases in Norway to be positive for the krone. We therefore expect the krone to gain against the euro, for example, with the EUR/DKK rate falling to 9.00 in a year’s time," Danske Bank commented in its latest research report.

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