Investors flee Swiss franc for Norway’s krone

Norwegians were greeted on Wednesday by the strongest krone in eight years after frantic action by Switzerland suggested the franc might no longer be the investor haven of choice.

Investors flee Swiss franc for Norway’s krone
Michael Faeres

Swiss central bankers’ decision to set a minimum price for the franc at €1.20 on Tuesday was seen as an act of desperation by investors who in the afternoon began buying Norwegian kroner. The franc fell instantly by 7.7 percent to arrive at that minimum, while the euro slumped further against the Norwegian currency.

With the euro and dollar laden with debt, investors had flocked to the franc and swelled its value, forcing the Swiss to take dramatic action.

“Where will all this safe-haven money go now,” Erica Blomgren of SEB bank asked business newspaper Dagens Næringsliv.

With the Swiss poised to print francs to ease upward pressure on their currency, Norwegian industry readied for the worst.

“The (Norges Bank) boss now has to sit as still as a mouse,” organized labour leader Knut E. Sunde told online paper

Norway’s capital-intensive heavy industry — dominated by shipbuilding and suppliers to offshore oil and gas — is heavily dependent on Asian, Brazilian, US and European buyers being able to buy goods made by pricy Norwegian labour. Companies like Aker Solutions and Statkraft are paid in the slumping euro and pay cost in the strengthening krone.

“We hope and believe this is just an overreaction after Swiss authorities acted on the country’s currency which has risen 25 percent this year,” said Sunde.

The falling euro-krone rate has gouged profits for Norwegian companies accustomed to over eight kroner per euro. Tuesday’s currency surge was the fastest on record.

While much was made of the investor buy-up of kroner, bank economists weighed in with reassuring remarks on how unsuitable the krone was as an investor currency. Unlike the prolific franc, too few kroner were in circulation to affect money markets.

Still, for Norwegian industry, the threat is real. Their competitors can still sell their capital goods and pay salaries in US, dollars, euro or Asian currencies.

With jobs in industry, tourism and the fishery at stake, Sunde warned the country’s bank managers to quit toying with the idea of raising rates.

“We can’t have an aggressive interest-rate policy in comparison to our most important trading partners,” he said.

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Coronavirus and oil send Norway’s krone plummeting to new low

An unusually sharp dip in oil prices over the weekend has left Norway’s already-weakened currency at its lowest-ever value compared to the euro.

Coronavirus and oil send Norway’s krone plummeting to new low
Photo: kjelljoran /Creative Commons

The depreciation of the krone increased late on Sunday night after a fall in oil prices, finance media E24 reports.

Against the euro, the krone had depreciated around 51 øre or 5 per cent as of Monday morning, E24 writes, putting 1 euro at a value of 10.95 kroner, most expensive price Norwegians have ever paid for the European single currency.

Additionally, the krone depreciated by around 31 cents or 3.39 per cent against the dollar. One dollar now costs 9.55, the worst rate for buying dollars with kroner since October 2000.

The further weakening of Norway’s currency comes when market uncertainty is also high due to the outbreak of coronavirus.

A breakdown in negotiations between Opec and Russia on Friday further exacerbated the problems facing the krone, according to E24’s report.

Just before 9am on Monday, oil prices plunged 26.68 percent to $33.39 a barrel, the biggest fall in oil prices since the Gulf War.

“It has gone from bad to worse. Oil prices have not hit bottom yet. If the supply continues to increase and there is a price war, that is going to hit the krone full on. This is happening on top of everything else,” Magne Østnor, a currency strategist with bank DNB, told E24.

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