Danish forex reserves remain unchanged in August, DN likely to keep policy rate on hold

Danish central bank has published the FX reserve data for August and central bank balance sheet. The FX reserve stayed the same at DKK 468 billion in August, as Danmarks Nationalbank did not need to intervene in the FX market. Government deposits rose to DKK 149 billion from DKK 136 billion in July.

EUR/DKK rose temporarily in August to 7.4590 – the highest level since the beginning of 2016. The weaker DKK could be explained by a lower return on Danish investors’ foreign assets, a lower current account surplus and more negative EUR/DKK FX forwards. In spite of the weakening, EUR/DKK remained within the historical trading range; hence, DN might stayed on the sidelines in FX, markets.

“In our view, Danmarks Nationalbank will await a move up to around 7.4610-7.4630 before starting to buy DKK in FX intervention – see more in FX Edge - Good reasons for higher EUR/DKK spot rate, 15 August”, noted Danske Bank in a research report.

The increase in government deposits in August underlines that Danish public finances continue to be strong. The high level of government deposits further signifies that the government plans to draw DKK 55 billion on the account in 2019 to fund the budget deficit and redemptions on public debt.

“We forecast EUR/DKK at 7.4525 in 3M and 7.4550 in 6M and 12M. Furthermore, we forecast Danmarks Nationalbank will keep the key policy rate unchanged at minus 0.65% in 12M”, added Danske Bank.