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The crown is at its strongest against the dollar in a year and a half and the expert believes in further strengthening. You can throw a price feast on items like Tesla and Apple products.
Norges Bank announced Thursday that the key policy rate could be increased earlier than the market previously expected. The first rate hike could come in the first quarter of 2022, Danske Bank’s chief economist Frank Jullum believes in an even faster and steeper rise.
The krone strengthened immediately after the new interest rate signals from Norges Bank yesterday, then weakened overnight. The krone is now down to 8.6 against the dollar, the strongest level since the summer of 2019 (see chart below).
A strong krone against the dollar is particularly positive for the price of Norwegian products, as Norwegian companies trade many imported products in dollars, including American and Chinese. Therefore, a strong crown will mean that products like Iphones and Teslas will be cheaper.
Recently, in November, Tesla prices rose sharply as a result of a weaker crown.
Read more: Price shock for Norwegian Tesla customers: so much increase (+)
Differences
Differences in interest rates have played a role over the years, but the difference between interest rates in Norway and abroad has not been significant since 2013. Handelsbanken Markets analyst Nils Kristian Knudsen tells Nettavisen Økonomi who believes that we may see further strengthening of the crown in the future.
In recent years, the risk appetite of market participants has been an important driver of the evolution of the krona exchange rate and, to a lesser extent, of relative interest rate differentials.
– If the appetite for risk among market participants improves in the future, the crown is likely to be further strengthened. However, topics in the currency markets change rapidly, and therefore the importance of differences in interest rates may increase in the future, Knudsen says.
Also read: New record on the Oslo Stock Exchange – ended at 950.50 points
Become
He notes that at various times during this year, most recently in September and October, we have seen sudden movements in the krona exchange rate as turmoil in the markets has increased.
Knudsen and his colleagues have not been updated with new forecasts after Thursday’s monetary policy meeting.
It says they will present updated forecasts for the krone exchange rate in January. In October, Handelsbanken predicted that in the first quarter we would have to pay 11 crowns for 1 euro and 9.40 crowns for 1 dollar.
We are much stronger than we are today, a dollar now costs just under 8.60 crowns. But given a persistently weak crown, it becomes:
- It is still expensive to vacation abroad
- Higher prices for the goods we buy abroad
- Relatively cheaper Norwegian products abroad
Also read: Nordea predicts the impact of the crown: US vacations can be much cheaper after the crown
Not predict
Norges Bank does not provide forecast against specific currencies, only against the weighted import exchange rate made up of the currencies of Norway’s trading partners: I44. Today this index is at the 111 level, in simple terms, 11 percent lower than normal.
Forecasts for the years 2021-2023 are roughly at this level, so the central bank generally does not believe in the strange strengthening of the crown. But in the latest report, Norges Bank writes that they expect the krona exchange rate to gradually strengthen.
This is mainly due to a higher interest rate differential with trading partners. If Norway had a clearly higher interest rate level than the countries we trade with, it would be more attractive to invest money in Norway in isolation.
Invested
Currency strategist Magne Østnor of DNB Markets notes that the strengthening of the crown was already reversed on Friday night. He says Norges Bank has assumed an economic rebound for some time and has signaled that interest rates will gradually rise.
– The central bank establishes a crown that will strengthen in the future. Of course, this is also due to the fact that they believe that the crown is somewhat weaker than a longer-term level would suggest, Østnor says.
DNB Markets has also not revised its forecasts for the crown in the future. In January this year, the brokerage house predicted a further fall of the crown. It became much stronger than anyone could imagine, as a result of the corona pandemic.
Also read: The head of the NHO with a gloomy message: -Unfortunately he was right
Moves more
Østnor and the currency experts at DNB have analyzed what affects the krona the most over time.
– The crown is the world’s currency that moves the most when the S&P 500 changes. It is a currency that fluctuates a lot, and from time to time we have seen sudden movements of the crown, Østnor said in late August. The S&P 500 is the broad American stock index and perhaps the largest stock exchange in the world.
– So we see that the biggest movements of the crown occur when the S&P 500 rises or falls. A stronger S&P 500 gives a stronger crown. There is no connection overnight, but our calculations show that if the S&P 500 changes by 1 percent, the crown changes by a third of this, Østnor said.
At a point
Since September 1, the S&P 500 has risen by approx. 5.5 percent. In the same period, the krona strengthened 1.85 percent against the dollar, exactly the third that Østnor spoke of.
The S&P 500 has risen as much as 12 percent since Nov. 1. The crown management for the last month and a half is, however, up to 10 percent, so there is almost a one-to-one connection here.
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