Last week, below forecast Norwegian inflation data saw the Krone fall to a 12-year low against the US Dollar.
The USD/NOK exchange rate was trending in the region of 8.0317 on March 10th after underlying inflation printed at 2.4% instead of the 2.5% forecast.
Although the Krone recovered to trade around the 8.0787 level before the weekend, a slide in the price of Norway’s main commodity has since pushed the USD/NOK pairing back to 8.2291.
Crude oil slumped to a fresh six-year low on Monday as the prospect of increased oil exports from Iran and concerns regarding global stockpiles took a toll.
Demand for commodity-driven currencies, like the Norwegian Krone and Canadian Dollar, was reduced by the dip in the price of ‘black gold’ and the Krone remained softer against the US Dollar in spite of the publication of below-forecast US Industrial/Manufacturing Production figures.
As the week continues Tuesday’s Norwegian Trade Balance report may inspire some fluctuations in the Norwegian Krone.
The data is expected to reveal a narrowing in the nation’s surplus in February, with economists forecasting a figure of 23.6 billion Krone following January’s 27.1 billion Krone surplus.
Of course, the Norges Bank interest rate decision is Norway’s biggest news of the week.
Last week strategists with TD Securities asserted that Norges Bank is likely to use Thursday’s interest rate decision to cut borrowing costs.
TD Securities was quoted as saying; ‘We’re in line with consensus in looking for another 25 basis point rate cut from the Norges Bank down to 1.00%, but this is less of a sure thing than we would have thought a month or two ago as the economic data hasn’t shown as much sign of cracking as we thought we’d see by now. Recently markets have pulled back the amount of easing priced in for Norway, and are factoring in only about 40 basis points of cuts over the next year.’
They added; ‘The key for market reaction will lie in the new policy rate projections. We suspect they will show a bias of about 5 basis points of easing and a message that hurdles must be met to cut further (weaker data, lower oil, stronger currency) rather than a message that things must go right to avoid a cut.’
If the Norges Bank does slash rates, the Krone may be pressured to new lows against peers like the US Dollar, Pound and Euro.
Fluctuations in oil prices and developments in the US will also have an impact on the Norwegian Krone’s performance this week.
The Federal Open Market Committee (FOMC) is due to deliver its latest policy decision on Wednesday. If the central bank supports speculation surrounding the first increase in US borrowing costs taking place in the summer, the US Dollar’s bullish run is likely to continue.