The consolidation in crude oil prices just under $50/bbl has left the Norwegian krone little changed over the past month. A surprise 25 bps interest rate cut by the Norges bank in September saw only a temporary spike higher in EUR/NOK to a year-to-date high of 9.6284.
The pair, however, quickly fell back to the 9.22-9.17 range, despite the central bank leaving the door open for a further interest cut in the coming year. Focus has shifted to the impact the current low crude oil price environment will have on Norway's long-term growth prospects, states Lloyds Bank.
Economic data continue to disappoint and, as a result, the central bank has been willing to overlook above-target inflation. Should the ECB pursue more QE it could pressurize the Norges bank to once again cut interest rates. All of this sounds negative, were it not for Norway's strong external position, due to its sovereign wealth fund leaving the krone better insulated than other G10 currencies.
