EXPLAINED: What's behind the stronger Norwegian krone?
Factors both in Norway and abroad have contributed to a stronger Norwegian krone. So, what's behind the strengthening, and what does the outlook look like going forward?
Norway's krone is showing signs of a turnaround after strengthening against the euro, dollar and pound in July.
On August 2nd, the euro was trading for 11.17 kroner, a dollar cost 10.16 kroner and a pound was worth 12.98 kroner.
In comparison, the euro has cost more than 12 kroner, the dollar hit a record-high trading value of 11 kroner, and the pound has been worth up to 13.77 kroner in recent months.
The strengthening comes after the krone was earlier marked out as the weakest among the world's ten most traded and used currencies.
Interest rates in Norway and abroad are behind the increases, according to financial institutions.
"In July, the krone received traction from both changes in the interest rate outlook and an increase in the price of oil," Norwegian bank DNB wrote in an analysis.
Lower interest rates in Norway than in other key markets have been pointed to as a factor behind the weaker krone.
For much of this year, Norway's key policy rate lagged behind other countries. This makes the krone less attractive to investors.
Norway's key interest rate is much closer to that of other nations. The key policy rate in Norway is currently at 3.75, with the central bank aiming to raise it higher. Meanwhile, the EU's central bank has a key interest rate of 3.75, and the policy rate in the USA is from 5.25 percent to 5.5 percent.
In other countries, there are signs that interest rates are having an effect as inflation has shown signs of easing. This means foreign financial institutions will pursue lower interest rate hikes.
However, in Norway, inflation for June was higher than expected. The national data agency Statistics Norway figures showed that prices rose 6.4 percent over the 12 months from June 2022.
The weak krone itself has contributed to increased inflation as it pushes up the cost of imported goods. Norges Bank, the central bank of Norway, has said that rate rises will arrive in August and September.
The markets in Norway, however, expect rates to rise higher and are anticipating a key policy rate of 4.5 percent.
"The market itself has now started to price itself in against an interest rate that is higher than Norges Bank's, up to 4.5 percent," currency strategist Nils Kristian Knudsen at Handelsbanken told Norwegian newswire NTB.
In theory, this means that the interest rates in Norway could rise higher and faster than in other countries, making the currency more attractive to investors and strengthening it further.
Another factor that will influence the Norwegian krone moving forward is higher energy prices.
"The Norwegian krone will likely remain under pressure in the time ahead. For it to strengthen, energy prices would need to rise, and Norway would need to have higher interest rates compared to other developed economies," Dane Cekov, a currency strategist at Nordea, previously told The Local.
Energy prices affect the krone as oil and gas sales make up a large part of the Norwegian economy. This is why higher oil and gas prices mean a stronger krone. The price of oil rose by 11 dollars a barrel in July.
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Norway's krone is showing signs of a turnaround after strengthening against the euro, dollar and pound in July.
On August 2nd, the euro was trading for 11.17 kroner, a dollar cost 10.16 kroner and a pound was worth 12.98 kroner.
In comparison, the euro has cost more than 12 kroner, the dollar hit a record-high trading value of 11 kroner, and the pound has been worth up to 13.77 kroner in recent months.
The strengthening comes after the krone was earlier marked out as the weakest among the world's ten most traded and used currencies.
Interest rates in Norway and abroad are behind the increases, according to financial institutions.
"In July, the krone received traction from both changes in the interest rate outlook and an increase in the price of oil," Norwegian bank DNB wrote in an analysis.
Lower interest rates in Norway than in other key markets have been pointed to as a factor behind the weaker krone.
For much of this year, Norway's key policy rate lagged behind other countries. This makes the krone less attractive to investors.
Norway's key interest rate is much closer to that of other nations. The key policy rate in Norway is currently at 3.75, with the central bank aiming to raise it higher. Meanwhile, the EU's central bank has a key interest rate of 3.75, and the policy rate in the USA is from 5.25 percent to 5.5 percent.
In other countries, there are signs that interest rates are having an effect as inflation has shown signs of easing. This means foreign financial institutions will pursue lower interest rate hikes.
However, in Norway, inflation for June was higher than expected. The national data agency Statistics Norway figures showed that prices rose 6.4 percent over the 12 months from June 2022.
The weak krone itself has contributed to increased inflation as it pushes up the cost of imported goods. Norges Bank, the central bank of Norway, has said that rate rises will arrive in August and September.
The markets in Norway, however, expect rates to rise higher and are anticipating a key policy rate of 4.5 percent.
"The market itself has now started to price itself in against an interest rate that is higher than Norges Bank's, up to 4.5 percent," currency strategist Nils Kristian Knudsen at Handelsbanken told Norwegian newswire NTB.
In theory, this means that the interest rates in Norway could rise higher and faster than in other countries, making the currency more attractive to investors and strengthening it further.
Another factor that will influence the Norwegian krone moving forward is higher energy prices.
"The Norwegian krone will likely remain under pressure in the time ahead. For it to strengthen, energy prices would need to rise, and Norway would need to have higher interest rates compared to other developed economies," Dane Cekov, a currency strategist at Nordea, previously told The Local.
Energy prices affect the krone as oil and gas sales make up a large part of the Norwegian economy. This is why higher oil and gas prices mean a stronger krone. The price of oil rose by 11 dollars a barrel in July.
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