NOK paradigm shift divulges Fed rate hike already factors in but Norges unchanged monetary policy yet to function

Contrary to the expected reflection from last night's Fed rate decision, the NOK seems to be reacting adversely agreeing on Norges Bank's rate decision this morning.

Some set analysts expected key rates to be unchanged at 0.75%. While on the flip side, in view of the recent collapse of the oil price other set of analysts expected a rate cut of 25 bps.

Well indeed, this part of reasoning was also difficult to disregard. However, there were also some factors to suggest as to why Norges Bank has left everything unchanged again today at 0.75% which has missed out few analyst's forecasts, as a result, that NOK has been appreciating.

Even though the oil price no doubt fell more notably than Norges Bank had assumed NOK has also depreciated more notably than the central bank had predicted as recently as September.

It had already pointed that out at the last meeting and even at the time it used this, in addition to the prospect of a more expansionary fiscal policy, as an argument in favour of unchanged interest rates.

Inflation too suggests that it may wait before cutting rates again.

On the contrary, let's just presume that during spring when the effect of the collapsing oil price was not yet comprehensible, it will signal a rate cut for the next meeting under the condition that the economy remains weak and therefore puts stronger pressure on inflation medium term.

But technical outlook signals that in between some minor gains in NOK, our argument is that room for further USD/NOK depreciation in medium terms.