NOK still appears undervalued – Danske Bank

Senior Analyst at Danske Bank Michael Grahn noted the Norwegian Krone appears undervalued for the time being.

Key Quotes

“To us the most important point of yesterday’s inflation release out of Norway was that the core measure did not drop further given the previous months’ surprise collapse”.

“The stabilisation does give some comfort and even if the core print was 0.13pp below Norges Bank’s projections it does not open up the market risk of unpriced rate cuts. Given the Easter effects influencing both airfares and food prices (in opposite direction), we would be cautious in interpreting too much on the details at this stage”.

“We still expect Norges Bank to keep rates unchanged and we would have to see a rather sharp decline in core inflation at the two prints prior to the June meeting (when the next monetary policy report is published) for us to change this call”.

“Near term, the NOK seems undervalued given the coinciding move in relative rates and oil prices over the last weeks, which reflects cautious investor sentiment. For now, we prefer a side-lined stance but note that historically, such periods of caution have often preceded NOK ‘catch-up’ rallies”.