This Currency Is Headed North: Pro

If you're a currency investor, chances are you have been more than a little focused on the Japanese election and the goings on in the euro zone.

Well, while you weren't looking, a little trading opportunity has opened up in the north.

That's the word from Josh O'Byrne, a currency strategist at Citigroup. O'Byrne says differences in interest rate policies are likely to propel the Norwegian krone higher against the Swedish krona ahead of central bank meetings in the two countries this week.

For now, Sweden appears to be the relative dove. "Our economists expect the Riksbank will deliver a 25bp cut," O'Byrne says, "and forecast a stable conditional rate path. Furthermore, they expect the Norges Bank will leave rates unchanged," O'Byrne says. And those prospects are not fully priced in, he adds.

On top of that, O'Byrne thinks Sweden may have to revise its inflation forecast downward. At the moment, its projections are higher than those for the euro zone, and Sweden is heavily exposed to its southern neighbor.

How high does O'Byrne think the krone could rise? He isn't saying, exactly, but he does offer this much in a note to clients: "We suspect SEK headwinds could build" ahead of Tuesday's announcement, "with the market pricing in the remaining bp of a cut.

As it stands the market currently prices in around 19bp in cuts (~76% probability), and around 36bp into the next 6m. We continue to hold a constructive view on NOKSEK. The degree to which SEK weakness persists we suspect likely depends upon how the Executive Board forecasts change and the extent to which they indicate their concerns of financial imbalances."

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