Norwegian Exporters Are Ignoring Perils of Coming Krone Rally

  • Hedge funds, investors again buying krone on positive outlook
  • Exporters haven’t hedged for a potential krone strengthening

Norwegian exporters are gambling that the krone will remain weak.  

According to Nordea Bank AB, exporters in the Nordic nation are hedging their foreign currency risk to a much smaller degree now than they were doing after the financial crisis. That could catch them wrong footed, when the currency continues its upward march as the oil crisis abates.

“Foreigners are starting to realize things are going better now and are coming in and buying kroner,” said Ole Hakon Eek-Nielsen, an analyst at Nordea in Oslo. “We predict a significantly stronger krone into next year. So we hope that the exporters will do something very soon.”

The krone is coming back in fashion after a three-year slump, boosted by a recovery in oil prices. Those gains could accelerate next year amid signs the Norwegian economy has turned the corner and as the central bank is unlikely to reduce rates further.

Norges Bank meets on Thursday and is estimated to keep its benchmark rate unchanged at 0.5 percent, according to 19 of 20 analysts surveyed by Bloomberg. The European Central Bank last week extended its stimulus measures while the Riksbank in neighboring Sweden is seen adding to its measures later this month.

The krone rose 0.4 percent to 8.94 per euro as of 8:16 a.m. in Oslo, following a jump in oil prices.

On a trade-weighted basis, the krone is up 7.5 percent this year. But it’s still about 20 percent below the level it reached in early 2013, when the currency emerged as a haven during the euro crisis.

Nordea sees the currency gaining to 8.5 per euro at end of 2017, or about 5 percent from current levels, amid growing appetite from hedge funds and international investors.

Given that the level of Norwegian mainland exports is now higher in volume than during the financial crisis, it’s “strange” that the currency hedging is now lower, Eek-Nielsen said.  

"Even the slightest movement in the exchange rate will feed straight into the financial statements," he said. Exporters could have locked in a kroner as low as 9.7 per euro if they had been on the ball, or about 7 percent below today’s level.

And now time is running out.

“So when the krone strengthens they will start to increase their hedging, which could cause an even faster krone strengthening than we have seen before,” Eek-Nielsen said.

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