Helaba Research
FX FOCUS
30 October 2014
Norwegian krone
AUTHOR
Christian Apelt, CFA
phone: +49 69/91 32-47 26
[email protected]


EDITOR:
Claudia Windt
PUBLISHER:
Dr. Gertrud R. Traud
Chief Economist/
Head of Research
Helaba
Landesbank
Hessen-Thüringen
MAIN TOWER
Neue Mainzer Str. 52-58
60311 Frankfurt am Main
phone: +49 69/91 32-20 24
fax: +49 69/91 32-22 44

The euro was able to stabilize against the US dollar, among other currencies. The
Scandinavian currencies came under pressure. The Russian ruble all but collapsed.
The Norwegian krone was successful in 2014 only during certain phases. Most recently, the
currency weakened markedly against the euro, since speculations about interest rate cuts
by Norway’s central bank were on the rise again. However, growth is solid and inflation
comparatively high. The interest rate advantage could widen again with a view toward the
coming year, which means that the euro-krone exchange rate should decline noticeably in
2015, at the latest.
Helaba Currency Forecast
Euro performance on a month-over-month basis
% vs. euro compared to the previous month (from 09/30 to 10/29/14)
US dollar
0,0
Japanese yen
0,7
British pound
-1,2
0,0
Swiss franc
0,1
Canadian dollar
Australian dollar
0,6
New Zealand dollar
-0,1
Swedish krona
-2,1
Norwegian krone
-4,2
This publication was very
carefully researched and
prepared.
However,
it
contains
analyses
and
forecasts regarding current
and future market conditions
that are for informational
purposes only. The data is
based on sources that we
consider reliable, though we
cannot
assume
any
responsibility for the sources
being accurate, complete,
and
up-to-date.
All
statements in this publication
are
for
informational
purposes. They must not be
taken as an offer or
recommendation
for
investment decisions.
-0,9
Czech koruna
-1,0
Polish zloty
Hungarian forint
0,4
Russian ruble
-8,5
2,8
Turkish new lira
South Korean won
0,4
Chinese yuan
0,1
Indian rupee
-0,6
3,1
South African rand
-0,6
Brazilian real
-0,5
Mexican peso
■ Core currencies ■ Rest of G10 ■ Currencies of emerging markets
Sources: Bloomberg, Helaba Research
HELABA RESEARCH · 30 OCTOBER 2014 · © HELABA
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F X F O C U S N O RW E G I A N K R O N E
NOK: potential for 2015
In the currency market the focus is once again on the significantly lower euro-dollar exchange rate.
By contrast, a currency like the Norwegian krone is drawing hardly any attention. And this even
though the last time the euro-dollar exchange rate went into a pronounced slide, during the intense
phases of the European debt crisis, a currency like the krone was also in strong demand and
appreciated accordingly. And in fact, this year the euro-krone exchange rate pulled back noticeably
at times. In recent weeks, however, Norway’s currency dropped again markedly (the euro-krone
rate climbed to above 8.45), with the result that it has fallen behind even against the euro since the
beginning of the year.
Krone currently not in
demand as a safe haven
Before the global financial crisis, the Norwegian krone had a somewhat different function in the
currency market than it does today. Back then, the krone was considered a commodity or highyielding currency. But in recent years, above all in the wake of the European debt crisis, the krone
took on the character of a safe investment haven. Once the Swiss central bank limited this function
for the franc with a minimum exchange rate, interest in the Norwegian krone rose. After all, Norway
impressed with public net wealth (thanks to the oil fund with more than 600 billion euro), with large
current account surpluses, and political stability.
This year there was relative quiet – often even optimism – in the global financial markets. The
political crises affected the markets only briefly. As a result, there was no great demand for the
Norwegian krone, especially since the European crisis countries have been well tolerated so far in
the financial markets. It was only recently that nervousness in the capital market has increased
again. Seen over the long term, the influence of the oil price on the krone is declining. Over the
short term, however, the by now much lower prices did weigh on the currency.
No solid link any longer with oil prices
USD/barrel, inverted. logarithmized
Sources: Macrobond, Helaba Research
Pronounced yield
advantage of the krone
over the euro
Norwegian krone rather undervalued against the euro
NOK
NOK
* purchasing power parity adjusted for the mean deviation of 22.5 %
Sources: Macrobond, Helaba Research
The interest rate factor continues to play an important role. With a key rate of 1.5 %, the krone can
hardly be called a high-yielding currency – in 2008, the rate stood at its peak at 5.75 %. Still,
among the ten most important currencies, Norway does have the third-highest interest rate.
Compared to the euro zone, where the ECB is still planning cuts, Norway’s advantage when it
comes to key interest rates is as high as it has rarely ever been in the last ten years. Accordingly,
yields on Norwegian bonds are substantially higher than on their German counterparts, with the
difference particularly pronounced on longer maturities. And yet, Norway’s currency is benefiting
little from this.
Interest rates, especially the key rates, will remain low for some time to come in the euro zone; in
addition, the ECB is trying to become even more expansionary through bond purchases. The
picture is less clear in Norway, with the central bank wavering between rate cuts and rate hikes. As
recently as June there was still a tendency toward a looser monetary policy, though it was more
HELABA RESEARCH · 30 OCTOBER 2014 · © HELABA
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F X F O C U S N O RW E G I A N K R O N E
neutral again at the most recent meeting of the central ban. The speculations about interest rate
cuts can be seen also as the reaction to the ECB measures as well as the most recent cut in
Sweden. After all, from the side of Norwegian politics there were repeated warnings that the
external value of the krone was too high. As a result, the central bank tried – at least at times – to
weaken the krone verbally. However, the thesis of a markedly overvalued currency is questionable.
If one adjusts the purchasing power parity by the mean deviation, the “fair” euro-krone exchange
rate of 8.30 actually points to a little undervaluation of the Norwegian currency.
Solid economic growth
with certain risks
Norway’s economy is not necessarily in need of an additional stimulus. Total GDP should expand
by just under 2 % in 2014, and the less volatile growth on the mainland – meaning, without the oil
platforms – should even post a rate over 2 %. This is persuasive, especially compared to the euro
zone. Growth is being carried especially by private and government consumption. Business
investments are weakening, though after a very strong previous year. Investments in the oil sector
will presumably decline further in 2015; falling energy prices bear additional downside risks in this
regard. Consumption, however, should remain stable. GDP should expand by another 2 % in 2015.
The Achilles heel of the economy is the housing market. After a long boom, the housing market is
considered to be markedly overvalued, and in its wake the indebtedness of private households has
also grown substantially. In 2013, a declining rise in housing prices caused certain concerns. Most
recently, however, prices recovered again, which means that one can signal the all-clear for now.
Norway’s economy is growing stably
GDP in % quarter-on-quarter
Sources: Macrobond, Helaba Research
Unclear path on
interest rates
Yield advantage of the krone noticeably shrunken
GDP in % year-on-year
NOK
% points
Sources: Macrobond, Helaba Research
At a solid 2 %, inflation is within the target range, by European standards it is even elevated at that
rate. This suggests that the central bank will continue its wait-and-see attitude. By contrast, in the
money markets the likelihood of an interest rate cut has recently increased noticeably, something
that also explains the most recent devaluation of the krone. In the face of the decline in oil price
and the trends in international monetary policy, the speculations could persist for now. In its own
projections, the central bank posits unchanged key rates in 2015 and higher ones in 2016. Should
the international environment brighten again over the course of next year, its next step could in fact
be a rate hike, possibly in the second half of the year. Norway’s capital market interest rates should
price this in already in the lead-up to this.
Even if the oil revenues are not flowing quite as lavishly in Norway, the country is still shining
brightly in foreign trade. The government can afford higher expenditures, which it can finance via
reserves. Even if Norway’s economy is not without its problems, it is impressive by international
standards. The more expansionary ECB policy will presumably weigh on the euro-krone exchange
rate in the future. In the coming year, Norway’s yield advantage should widen also because of the
interest rate hike expectations for the krone. As a result, in 2015 the euro-krone exchange rate
should fall in the direction of 8.0 and below.
HELABA RESEARCH · 30 OCTOBER 2014 · © HELABA
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F X F O C U S N O RW E G I A N K R O N E
Helaba Currency Forecasts
Performance
year to date 1 month
vs. Euro
current*
Forecast horizon at end ...
Q4/2014
Q1/2015
Q2/2015
Q3/2015
(vs. Euro, %)
US dollar
8,8
Japanese yen
5,2
0,7
138
135
131
132
135
British pound
5,2
-1,2
0,79
0,79
0,78
0,78
0,80
Swiss franc
1,8
0,0
1,21
1,25
1,25
1,25
1,25
Canadian dollar
3,4
0,1
1,41
1,38
1,33
1,32
1,36
Australian dollar
7,3
0,6
1,44
1,42
1,40
1,36
1,39
New Zealand dollar
3,3
-0,1
1,62
1,60
1,58
1,56
1,60
Swedish krona
-4,9
-2,1
9,30
9,20
9,00
8,90
8,80
Norwegian krone
-1,5
-4,2
8,47
8,30
8,10
8,00
7,80
vs. US-Dollar
0,0
1,26
1,25
1,20
1,20
1,25
(vs. USD, %)
Japanese yen
-3,3
0,7
109
108
109
110
108
Swiss franc
-6,5
0,0
0,95
1,00
1,04
1,04
1,00
Canadian dollar
-5,0
0,1
1,12
1,10
1,11
1,10
1,09
Swedish krona
-12,6
-2,1
7,37
7,36
7,50
7,42
7,04
Norwegian krone
-9,5
-4,2
6,71 1,57
6,64
6,75
6,67
6,24
-1,2
1,60
1,58
1,54
1,54
1,56
US-Dollar vs. …
(vs. USD, %)
British pound
-3,3
Australian dollar
-1,3
0,6
0,88
0,88
0,86
0,88
0,90
New Zealand dollar
-5,0
-0,1
0,78
0,78
0,76
0,77
0,78
*29.10.2014
Sources: Bloomberg, Helaba Research 
HELABA RESEARCH · 30 OCTOBER 2014 · © HELABA
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