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Norwegian inflation supports NOK - UBS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 11, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Monday's Norwegian inflation data once again confirmed the relatively high inflation trend and the initial market reaction was positive for NOK, commented UBS analyst team which added that year-to-date, NOK has been the second-best performing G10 currency. They see EUR/NOK around 9.00 over six and twelve months.

    Key Quotes

    “With EUR/NOK now trading close to our three-month forecast of 9.30, we highlight that the road to further NOK strength will continue to be bumpy, but should remain worth the ride. Interest rates remain very low for Norway's circumstances. As its economy continues to stabilize in the environment of a sustained Eurozone recovery, rates should recover and start to support our overweight position in NOK against the underweight in EUR.”

    “Details of the inflation data release show that core inflation (CPI-ATE) fell slightly to 3.3% (previously 3.4%). The last time core inflation was below the Norges Bank's 2.5% target was in May 2015. Since then, the central bank's forecasts have for the most part been too low. It's current forecast sees core inflation falling below the 2.5% target only by late 2017. High inflation makes most interest rates deeply negative in real terms, which supports Norway's economy after the oil shock.”

    “EUR continues to perform well within the G10 currency universe. However, Eurozone inflation remains very low and the Eurozone's economic recovery dependent on easy monetary policy. We continue to see some EUR weakness within the next three months. A strengthening Eurozone recovery and rebounding inflation should then stabilize EUR/NOK at around 9.00 over six and twelve months.
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