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Currency Report : Norwegian Krone Gains as Oil Rallies

February 25, 2011 - Written by John Cameron

The Norwegian Krone has traded in a distinct up-trend against the US Dollar since the end of November, 2010, strengthening from near to 6.2400 against the Greenback at this time, to currently stand at under 5.6300.

Recent global events have benefitted the Krone, with oil prices spiralling to a 30-month high on the wholesale market this week. Norway is the world’s fifth largest oil exporter, meaning that rising oil prices are particularly supportive to the Krone.

Norway’s is one of the few developed economies to hold a significant sovereign wealth fund, placing it in a structurally solid position compared to many of its counterparts, which are struggling to service massive sovereign debts. This has led the markets to consider the Krone a safe haven currency, which has caused it to make further gains throughout this week. Global stock markets have plummeted over the last seven days as the Arab uprising escalated and threatened to spread to key oil producing states, Saudi Arabia and Iran, leading a flight to safety in world markets.

Economists predict that this week’s rally in oil prices will hasten a upping in interest rates in the majority of global economies, with the exception of Japan and Switzerland. Currency analysts suggest that this will open up an opportunity for speculators to enter into ‘carry trades’, borrowing money at low cost in Japan and Switzerland and using it to buy currencies which are likely to out-perform the market, including the Norwegian Krone. This could lend further support to the Krone as 2011 progresses, particularly given that the futures markets are pricing in a 25 basis point hike in Norwegian interest rates in Q2 of 2011.

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