Weak Oil vs dovish Draghi for EUR/NOK – Rabobank

FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank notes that weaker oil is leading EUR/NOK higher but dovish ECB statements may hinder the upside.

Key Quotes

“The economic difficulties that are presenting themselves in Norway make clear why the PM last year suggested that she would welcome a weaker NOK. However, unlike much of the rest of Europe, Norway is not suffering from deflationary risks.“

“Norway’s unemployment rate is at a enviably low level of 3.7% and the central bank is expecting that wage inflation will continue to grow at a rate of 3% to 4%.”

“Currently underlying inflation is 2.5% in line with the Norges bank’s target and inflation expectations are reported to be well balanced. This suggests that the Norges Bank has little room of another interest rate cut; at least in the coming months.”

“While weaker oil prices in recent weeks have led EUR/NOK higher, the aggressively dovish comments from ECB President Draghi recently could hinder further upside potential.”

“We expect EUR/NOK to hold mostly within an 8.40 to 8.50 range in the coming months.”