NOK vulnerable for further USD strength – Nordea

Over the past couple of years, there has been a clear tendency that a stronger dollar is bad for the NOK. USD/NOK looks more in line with the recent EUR/USD move, which again leaves the NOK vulnerable for further USD strength, according to analysts at Nordea.

Key quotes

“USD/NOK seems to follow EUR/USD with a beta, so when EUR/USD is low USD/NOK is high. Implicitly this makes it very hard for the NOK to perform also against the EUR when the USD is strengthening. Should EUR/USD move lower to say 1.06, it wouldn’t be surprising to see USD/NOK around 9.50. Depending on which sensitivity you apply, EUR/NOK would at best be unchanged in such a scenario.”

“The ones waiting for a more fundamental reverse of the weak trend in the NOK is basically waiting for the turn of the USD. We are not prepared to call this yet.”

“It may be smarter/easier to trade NOK rates than NOK spot in the current environment. We have been on the receiving side of the Mar+3m FRA since prior to the Dec 2019 meeting in Norges Bank. The trade worked, but in Q2 such trade should be turned around as the NOK excess liquidity will tighten markedly in to June, while the Fed tapering of POMO activity could re-increase USD-Libor.”