NEWS / Foreign Exchange

NOK/SEK upside beckons - does dollar-bloc intervention?

Summary and conclusions

• Both Norges Bank and Sveriges Riksbank left rates unchanged at the latest policy meeting but signalled that hikes would come soon enough. But for the two currencies, the similarities end there. We are looking for Norges Bank to hike rates beyond what is currently expected by the market, thus cementing the NOK??™s role as a high-yielding currency in a positive carry environment, while we expect the Riksbank to stick to its view that ???inflation is structurally low??? and thus consolidate the SEK??™s position as the G10 currency with the third-lowest rate support, only bettering the ever-struggling JPY and CHF. We thus see upside risks to EUR/SEK and expect the NOK to be able to match the strongly-performing EUR. We will thus be looking for an opportune moment to go long NOK/SEK.
• The commodity currencies - AUD, NZD and CAD - are hovering around multi-year highs and financial market observers are now speculating whether intervention in the currency markets by the respective central banks is approaching. Investigating the facts, the Reserve Bank of Australia (RBA) is already intervening on a minor scale, the Reserve Bank of New Zealand (RBNZ) is waiting until the interest rate cycle has peaked and sticks to verbal intervention for now, whereas Bank of Canada (BoC) is not in ???intervention mood??? at current FX levels. In our view, it is important to realise that FX intervention is not necessarily a ghost of the past.