Summary:
- Norwegian central bank hints at a rate rise as soon as September, NOK strengthens
- It sees reasons implying an increase in price and wage inflation further out
- Interest rate market remains cautious with regard to pricing a rate hike till September
Over the course of the past hours we were offered monetary policy decisions from the SNB as well as the Norges Bank. While the former had a tiny impact on the Swiss franc lifting inflation forecasts for this year, and lowering them for the longer term, Norwegian policymakers underpinned the krone suggesting a rate hike is likely to take place as soon as September.
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Create account Try a demo Download mobile app Download mobile appIn a brief statement the bank wrote that the outlook and balance of risks suggests that they key policy rate will most likely be raised in September 2018. The bank admitted that the backdrop for the domestic economy appears to be quite buoyant as an upturn is continuing. In terms of the inflation prospect the Norges Bank said that even as underlying price growth is lower than its objective, rising capacity utilisation implies an increase in price and wage inflation further out. The statement concluded that as in March the overall outlook implies gradual monetary tightening in the years ahead.
Interest rate market participants price in roughly 15 basis points tightening until September based on FRA rates. Source: Bloomberg, XTB Research
Looking at the chart above one may spot that based on current FRA rates the likelihood of a hike in September stands at around 60% suggesting the NOK may still see a pick-up during the run-up to a meeting in three months. Anyway, the spread between a 3-month FRA contract beginning in September and a 3-month money rate has surged to its highest level in more than five years implying interest rate traders have not been so upbeat for monetary tightening at least since early 2013. Having said that, hawkish remarks do not imply immediate NOK appreciation as it may struggle until the US dollar ends its (short-lived in our eyes) rally.
The weekly chart seems to tell us that NOK bulls should wait for a bit better entry level looking for a possible reversal in the vicinity of 8.41. A notch above this line one may localize an upper bound of a long-term channel which could be helpful for NOK buyers alike. To sum up, once the pair reverses its current move a pullback toward at least a 8.00 handle looks reasonably. Source: xStation5
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