The surprise drop in the Chinese yuan has driven Norway’s krone down to levels not seen since January.
The currency fell as much as 0.8 percent against the euro and traded 0.4 percent lower at 9.1743 as of 9:55 a.m. in Oslo. The move brings the krone’s decline to 11 percent over the past 12 months as turbulence in Asian currency markets adds to losses triggered by lower oil prices.
“The surprise weakening of the yuan and the subsequent risk-off sentiment is the main explanation,” said Arne Lohmann Rasmussen, chief analyst at Danske Bank A/S. Rising expectations for a rate cut next month amid persistently low oil prices are also clear in the exchange rate, he said.
A drop in Brent crude is coinciding with the worst slowdown in oil and gas investments in Norway since 2000, threatening growth in western Europe’s biggest crude producer. The krone has followed the decline in the price of oil, which remains below $50 after a high of $115 in June last year.
Norges Bank cut its main rate to 1 percent in June and signaled that the probability of another cut in the autumn is as high as 70 percent.
“As long as the market is ‘oil nervous’ it will be very hard for the krone to gain sustainably,” said Martin Enlund, chief analyst at Nordea Bank AB. Wednesday’s drop “seems aggressive.” The krone will probably strengthen to 8.7 against the euro in three months amid a stabilization in oil prices and in China, he said.