EUR/NOK likely to ease to 8.60 by mid-2017 and to 8.20 by end-2017, says Lloyds Bank

The EUR/NOK currency pair has declined considerably in the past year after reaching a high above 9.75 in January 2016. It had briefly dropped below 9. In the G10 space in the last 12 months, the Norwegian krone was the third best-performing currency.

The rebound in oil price has been the main factor driving the appreciation. Oil prices briefly increased over USD 58/bbl last month after the agreement by oil producers to lower production from the beginning of 2017.

While the recent increase in oil prices has been welcomed by the Norwegian economy, the softness in the beginning of 2016 had led to a major reduction in capital spending in the oil and gas sectors throughout last year as a whole. Given a more supportive oil price backdrop, a rebound in investment in the quarters ahead might result in more rapid GDP growth in 2017 and a further waning in expectations of additional rate cuts, noted Lloyds Bank in a research report.

“From a longer-term perspective, we believe the krone remains fundamentally undervalued and look for EUR/NOK to ease to 8.60 by mid-2017 and to 8.20 by the end of next year”, stated Lloyds Bank.