July 30 (Bloomberg) -- Norway’s krone fell to the lowest level in 17 months against its Swedish counterpart after traders reduced bets on a widening interest rate differential between the two countries.
The krone fell as much 1.32 percent against the krona to 1.1208, the lowest level since February 2011, and was down 0.9 percent as of 3:54 p.m. in Oslo. Sweden’s krona surged after a report today showed the largest Nordic economy grew seven times faster last quarter than estimated in a Bloomberg survey.
The market “had priced much more expected easing in Sweden than in Norway and that is partly being reversed now,” Kasper Kirkegaard, senior foreign-exchange strategist at Danske Bank A/S, said by phone from Copenhagen.
Policy makers in Norway, Europe’s second-largest oil and gas exporter, were seen keeping their benchmark rate unchanged this year while traders had bet on rate cuts from the central bank in Sweden. Sweden’s gross domestic product unexpectedly grew 1.4 percent through June, after advancing a revised 0.9 percent the previous quarter, today’s report showed. The expansion was estimated to be 0.2 percent in the quarter, according to the median estimate in a Bloomberg survey.
The krone and the krona have strengthened as the two AAA rated Nordic economies emerged as havens amid Europe’s crisis.
“If you go back just six months the focus was mainly on Norway, the strong credit quality of the Norwegian government and the strong Norwegian economy,” said Kirkegaard. Long krone positions from then “are being unwound and that has likely meant that the sell-off has been sharper than it otherwise would have been,” he said.
Norges Bank, which cut its benchmark rate by 0.75 percentage point over two meetings in December and March to 1.5 percent, has since signaled it may raise rates as soon as at the end of this year. Policy moves will respond more to the risk of domestic overheating amid rising credit and house prices, the bank indicated at its last meeting in June.
Sweden’s Riksbank signaled earlier this month it may cut interest rates before the end of the year.
“For now there’s definitely strong support for the Swedish krona so given today’s GDP report we would not be surprised to” see it gain even more against the krone, said Kirkegaard.
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