Mideast Petro-Diplomacy Could Send the Norwegian Krone Into a Rally

  • SEB says krone is now `extremely undervalued' verus others
  • Stronger crude prices will raise appetite for currency: DNB

The time may be ripe to buy the Norwegian krone.

Economists in the Nordic region say the currency is undervalued and is about to rally as oil prices rise in the second half of the year.

The krone has taken a beating since the drop in oil prices began. The 71 percent plunge in Brent crude since a June 2014 high has driven down the krone 16 percent on a trade-weighted basis in the same period. While the decline in oil, the lifeblood to Norway’s economy, has taken its toll on the nation, the weaker krone has helped export businesses.

Now there’s speculation oil prices may be stabilizing as Russia and Saudi Arabia reached an agreement to freeze oil output in talks that are now expanding to other producers.

Here’s what some of the region’s biggest bank’s have to say:

Richard Falkenhall, a currency strategist at SEB:

  • It’s time to buy -- “krone weakness has gone too far” as the economy is faring better than feared, leaving the currency “extremely undervalued against other currencies”
  • While he sees one more rate cut, “current market pricing seems too aggressive and most likely there will be a repricing of market expectations, which should support the krone”

Camilla Viland, DNB currency strategist:

  • “The current weak levels present a good opportunity to buy krone.” While there is a risk of a rate cut ahead that would weaken the krone, it will probably be offset by stronger crude prices, which means the “appetite for the krone will pick up again”

Martin Enlund, chief analyst at Nordea Markets:

  • “The krone should gain a bit even if we don’t see oil much higher in the near term. Why? Valuation of the krone -- super-cheap -- plus improving liquidity in Scandinavian currencies”

Norway’s economy eked out growth in the fourth quarter as mainland gross domestic product, stripped of oil, gas and shipping, grew 0.1 percent. While recessionary risks loom, a small expansion is still anticipated by economists in the region. The slowdown will probably trigger another rate cut in March.

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