Norwegian krone seen as undervalued

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The Norwegian krone (NOK) has had a great run this yr.

By mid-session on Tuesday it was up eight.7 per cent versus the US greenback and had gained 6.2 per cent towards the euro.

However the charges and currencies analysis group at Financial institution of America Merrill Lynch says that, even with this sturdy rally, merchants ought to nonetheless think about going lengthy the krone on any pullback.

BofA cites a couple of causes for current NOK power.

First, it has benefited of late from oil costs climbing to 12-month highs.

Subsequent, BofA says the NOK has been extraordinarily “misaligned”, and regardless of the rebound, stays undervalued.

“Fee differentials nonetheless recommend some upside potential and certainly, even positioning exhibits actual cash buyers have room so as to add to longs”.

Lastly, the foreign money is discovering itself underpinned by a comparatively hawkish tone adopted by the central financial institution (Norges) at its September assembly as financial circumstances enhance.

Employment knowledge has been higher than anticipated just lately. Gross home product progress stunned to the upside within the second quarter.

“In all, the constructive medium-time period macro view on NOK stays intact, and we might look to purchase any dips. The response of the macro knowledge and of the central financial institution to the stronger NOK shall be key within the months forward.

“If Norges stays as sanguine on NOK appreciation at its subsequent coverage assembly, we expect this might bolster the arrogance of NOK bulls, probably strengthening NOK quicker than we anticipate,” BofA concludes.

jamie.chisholm@ft.com


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