OPEC-Induced Rally Turns Norwegian Krone Into a Sell for Danske

The Norwegian krone strengthened to a 13-month high as OPEC agreed to the outline of a deal that will cut production for the first time in eight years.

The currency strengthened to as much as 9 kroner a euro, the strongest level since August 6, 2015, and traded at 9.04 against the euro as of 1:38 p.m. in Oslo.

Norway, western Europe’s largest oil producer, has seen growth slow and unemployment rise after a collapse in crude prices in 2014. With the central bank cutting rates to a record 0.5 percent, the weakened krone has helped stimulate growth in other parts of the economy with signs of improvement over the past months.

“While we in the medium to long run still expect EUR/NOK to edge lower, we think the latest move in the cross seems excessive,” Kristoffer Kjaer Lomholt, an analyst at Danske Bank, said in a note.

It will be difficult for OPEC countries to agree on specific details at the official meeting on November 30, particularly concerning country-specific quotas, according to Danske. Oversupply may persist as OPEC countries still produce close to full capacity under the deal and with the oil price closing on $50 a barrel, the U.S. output may ramp up again.

“Oil has become a buy-on-rumors-sell-on-facts story for the next months,” said Kjaer Lomholt, who recommends investors buy euro and sell krone at current levels. “We find value in positioning for a correction.”

For Nordea Bank, the Nordic region’s largest lender, the OPEC move has removed a lot of uncertainty on the krone.

“Last night’s deal removes some of the downside in the oil price and with that some of the upside in the EUR/NOK,” Kjetil Olsen, an economist at Nordea wrote in a note. “The risk of a significant new fall is sharply reduced.”

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