Norwegian Krone at Record lows

Yesterday the Norwegian Krone fell to the lowest level on record versus the EUR. The EURNOK rose to as high as 10.2238 as European markets drew to a close. Given the rebound in the pound over the past few days, the Queen’s currency has enjoyed pretty good run against the ailing Kronethis week too. Even the USD has fared quite well against the NOK, especially given that the US currency has lost ground almost everywhere else so far this week. To better see how the NOK has weakened so dramatically over the past 20 years please take a look at a chart of the EURNOK below.

This chart was taken ahead of the US close yesterday evening. You can see the quite stunning move in the EUR, not just over the whole period, but more recently over the past 5 years. Meanwhile, the sinking Krone has got a few people scratching their heads, not least the author of this article. Trying to work out why the Krone is under such pressure can surely only be about capital flow and appetite for Norwegian debt?

Whilst some experts believe that Norway has squandered itsoil legacy over the past 50 years, the country is neverthelessstill in a very enviable position compared to its peers. Norway enjoys an unemployment rate of just above 2%, a net surplus in terms of overall debt to GDP, and a very low debt to GDP ratio of just 37%.

So why is the Krone sinking to all time lows versus the EUR? Well, the excuses for that are many. Some pundits have blamed it on fish prices, others on the falling demand for oil and the relatively low oil price. However, the Krone was significantly stronger when oil was half the price it is today, so I think we can discount that reason. As for blaming it all on the fish, I am not entirely sure about that either.

The simple truth is that it seems no one wants to own Norwegian debt because of the possibility that it will become cheaper, especially if the Norges Bank raises rates again next week on 24th October. Last month the central bank surprised the markets, when they increased the official rate by 0.25% to 1.5%.  

However, the consensus is that the Norges Bank will not raise rates again next week. Even so, given the further relapse in the Krone over the past 4 weeks, it might provide a good excuse for them to do so again.

The really daft thing about all this; is that in seeking to counter inflation, the action taken so far this year, that has seen rates double from 0.75% in January to the current level of 1.5%, has made little discernible difference. All it hasperversely achieved is to weaken the Krone to its lowest levels, in not just 20 years, but ever versus the EUR, or even against the Deutschemark that came before it. Beyond that, it might be worth considering the possibility that the weaker Krone has been contrived too. I’ll bet the SNB is somewhat envious of that right now!

So, at some point in the not to distant future this lunacy is going to end and watch out when the aroma from the coffee beans becomes irresistible. The NOK will come back and the further it falls in the medium term the greater that rebound will be. Personally, I think its madness that we are where we are now quite frankly. However, it is probably a case of waiting for the tide to turn before jumping aboard. Meantime the weaker the currency gets the more attractive it will eventually become.