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Krone comeback in cards as Norges Bank seen defying global gloom

Nordkinn Asset Management and Storebrand Asset Management expect that things may be about to look up for the Norwegian krone, after its plunge last week to levels unseen since the global financial crisis.

Storebrand Asset Management's Head of Allocation and Global Fixed income Olav Chen eyes a stronger NOK in the near-term. | Photo: CF Wesenberg / Kolonihaven.no

Nordkinn Asset Management and Storebrand Asset Management see the currency clawing back some of its recent losses, drawing strength from the prospect that Norges Bank will defy the dovish bias of global central banks to signal higher interest rates. Nordkinn started buying the krone earlier this month, according to founding partner Bjorn Roger Wilhelmsen.

The krone slumped almost 4 percent versus the euro in the past month as global trade tensions undermined demand and sent the price of oil, Norway’s top export, tumbling. Still, Norges Bank will likely maintain its bias for tighter policy at a review this week with core inflation staying above the central bank’s target and given the recent strong economic data, adding support to the currency, according to RBC Capital Markets.

“We have been buying the Norwegian krone during the recent sell-off, expecting a reversal later in August and in September,” said Nordkinn’s Wilhelmsen. “We expect that Norges Bank at the meeting this week signals another rate hike later this year.”

Nordkinn was started in 2013 and focuses on global central banks in an attempt to profit from changes to monetary policy. Three of the fund’s partners, including Wilhelmsen, used to work at the Norwegian central bank. The firm had USD 1.2bn of assets under management as of July.

The Norges Bank has previously surprised investors with its hawkish stance despite a gloomy global outlook, raising rates three times since September 2018. Markets are underestimating the central bank’s willingness to lift rates further, according to Olav Chen, head of allocation and global fixed income at Storebrand Asset Management.

He sees the krone strengthening, and expects the recent exchange-rate weakness to reinforce the case for a September rate hike. Norway’s central bank will announce its latest policy decision on Thursday. The krone declined 0.5 percent Monday to 9.999 per euro as of Monday afternoon. It reached 10.0969 on Aug. 7, the weakest level since 2008.

At the start of 2019, the Norwegian currency was estimated by strategists to be one of the best-performing major currencies for the year.

“Markets appear to have priced out the risk of higher rates and the hurdle is low for the statement being perceived as hawkish,” RBC strategists Elsa Lignos and Adam Cole wrote in a note.

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