EUR/NOK likely to decline steadily to 8.90 by mid-2017

The recent rebound in crude oil prices has underpinned a stable increase in the Norwegian krone after hitting a low in July end, pushing down the EUR/NOK to 9.25 from around 9.50. Furthermore, the flow of economic data has been encouraging, indicating towards stabilization in Norway’s economic activity that has led to certain decline in expectations of further easing by the Norwegian central bank, noted Lloyds Bank in a research note.

Even if a rebound in oil prices is expected in the remainder of 2016, the historically low levels indicate that investment in the oil sector would continue to be weak and remain a drag on the Norwegian economic growth in the near term.

In all, there is a possibility that the Norges Bank might lower its key interest rate one more time, mostly during its September meeting. In the near term, this is likely to keep the currency pair EUR/NOK relatively range bound with a little upside bias, reflecting a weaker NOK, said Lloyds Bank.

“Further out, however, fading expectations of additional rate cuts, coinciding with an ongoing recovery in oil prices supports our view for a steady decline in EUR/NOK to 8.90 by mid-2017”, added Lloyds Bank.