Ali’s blog

Mostly quant stuff with occasional digressions

Norwegian krone as the new safe haven currency?

Posted by alifinmath on March 18, 2009

In the FT:

Norway’s krone: the new safe haven currency?

David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”

This might seem surprising. Only last December the krone dropped to a record low against the euro, as falling oil prices took their toll on the currency. But, as crude prices have stabilised, the oil producer’s currency has fought back strongly.

Mr Bloom says: “The Norwegian krone is our preferred major currency and we expect a sustained appreciation over the next 18 months.”

Analysts say on a number of measures, the krone is near or at the top of the league among the world’s 10 most traded currencies.

Monetary policy is also supportive of the krone, with the Norges Bank, Norway’s central bank, like those in other commodity-producing countries such as Australia and New Zealand, not expected to resort to quantitative monetary easing to boost inflation expectations. The country also has a large current account surplus.

The cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.

Mr Bloom says that if the stock of assets Norway has salted away from its oil revenues in the Government Pension Fund of Norway is added to the mix, the bullish story for the krone is complete.

But some analysts are less glowing about the krone’s prospects.

Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support.

But he says: “You are trying to win the least ugly currency contest at the moment. I can’t disagree that it might move higher, but I can’t get too enthusiastic.”

His main concerns are the lack of liquidity in the market and the krone‘s long-held correlation with oil prices.

“I struggle to see how the Norwegian krone can outperform for a sustained period if oil prices remain low,” he says.

But he believes that the krone, along with the Australian dollar, is ideally positioned for prolonged gains as risk appetite improves.

He says the Australian dollar represents an economy with a superior growth outlook. The country’s budget surplus is expected to hover at 1 per cent of gross domestic product – which compares with the deepening deficits of the US, Europe and Japan.

He says: “The krone has the upper hand as its structural situation is boosted by a hefty current account surplus standing at 5 per cent of GDP – the biggest in the industrialised world”.

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4 Responses to “Norwegian krone as the new safe haven currency?”

  1. Vladimir said

    I’ve read similar bullish statements regarding, not the Canadian dollar per se, but the Canadian economy. Could a primary commonality be that Canada and Norway are oil-rich Western states with relatively high production in recent years?

  2. alifinmath said

    The “fundamentals” are sound for Norway: a big current account surplus. Plus we mustn’t forget peak oil, which means oil prices have to rise. At the same time, Norway does not have a large economy and the Norwegian krone is not really that liquid. Plus I don’t think any country wants the dubious privilege of having a safe-have currency: it screws up the domestic economy too much, making exports less competitive. Let’s see. As of this morning, the dollar is down to 1.37 against the euro, and commodities have surged. People are (rightfully) afraid of “currency debasement” (i.e. the US Fed printing lots of new money).

  3. pepperestone forex…

    […]Norwegian krone as the new safe haven currency? « Ali’s blog[…]…

  4. sam jal said

    How can I buy the Norwegian for a good price

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