Danish central bank released its balance sheet and FX reserve data for March yesterday. Last month, FX reserves reached DKK412bn. Furthermore, since the EUR/DKK pair traded near the central rate, there was no need for the central bank to intervene in the FX market. From February, Denmark’s FX reserve dropped DKK 10 billion because of repayment of foreign government debt. The halt of selling EUR/DKK in intervention by the central bank was possible due to the 30bp of accumulated tightening of spread between the policy rates of ECB and DN, according to Danske Bank.
EUR/DKK dropped to about 7.4440 in the past week, the same level at which the Danish central bank was purchasing EUR/DKK in intervention in February 2015. Therefore, after concentrating on the central bank selling EUR/DKK in intervention for one year, the current focus is if the central bank will purchase EUR/DKK in intervention to limit EUR/DKK downside, added Danske Bank.
“We expect DN to cap EUR/DKK to do so not far below current levels. Further, we expect it to take DKK10-20bn in intervention to trigger a unilateral Danish rate cut. However, our main scenario remains for EUR/DKK to trade around current levels on 3-12M and for DN to keep the key policy rate unchanged at minus 0.65% on 12M”, says Danske Bank.