The Nordic Currency That's Ready to Heat Up
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The Norwegian krone is getting ready to rise against the currency next door, this strategist says.
They might be neighbors, but the Norwegian krone and the Swedish krona are in rather different situations. And Paul Robson, senior G20 FX strategist at Royal Bank of Scotland, sees a trading opportunity.
In Sweden, exports account for about half of GDP and about 40% of those exports go to Europe - a tough situation when European economic data is becoming ever more gloomy. But Norway, a player in oil, has been benefiting from strength in oil services and investment.
Then there are the central banks. In Sweden, "175 basis points of tightening since the Riksbank began normalizing the policy rate in July 2010 has also weighed on the Swedish consumer and leaves significant scope for rate cuts," says Robson in a note to clients. But in Norway, rising housing prices are limiting the central bank's interest in potentially inflationary rate cuts. "Overall, it appears there remains greater scope for rate cuts in Sweden than in Norway," Robson says.
Add in the fact that the Norwegian krone has only a low correlation with changes in risk appetite, as measured by the ups and downs of the S&P 500, and you have a buying opportunity.
Robson recommends buying the Norwegian krone against the Swedish krona at 1.1713, with a target of 1.2200 and a stop on a 2-day close below 1.1605.
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