NOK likely to soar on higher oil prices in 2016

Norway's Central Bank cut its interest rate by 0.25pp in September but kept it unchanged in December. However, the December monetary policy report indicated another rate cut before the summer this year, as early as March. As the central bank is gradually shifting its focus on the exchange rate and inflation, the markets expect further reduction in H2 2016.

Norges Bank is seen more concerned about the effect on real wages from increasing export prices. Lower oil prices undermined the country's terms of trade, meaning a depreciation of the real exchange rate, which in turn impacted short-term interest rate expectations.

"Given our slightly less pessimistic view of developments, we do not expect interest rates to be lowered at the next crossroads in March, although there is, of course, still a chance of this happening" said Danske Bank "Given our expectation of stronger global growth, and so an increased appetite for risk, higher oil prices and a slightly more aggressive central bank, we expect to see a much stronger NOK in 2016"