Silent And Stumped Over The Skandi’s – NOK

The Skandi’s or Nordic currencies are not having a good time this quarter.

Since 16th of Sept, the Norwegian Krone is down 2.85% against the USD and down 6.55% in the past 12 months. The Swedish Krona faring much better, down just -0.8% since Sept and still up 1.8% for 12 months. Only the Danish Krone is performing well, up 1.92% since Sept and 5% in the last 12 months. And nobody really trades the Icelandic Krona and Finland adopted the EUR dollar.

I have not read too many reports offering suggestions except for mentions of weakness and the latest news this morning is that Norway is ready with measures should growth slow, according to their Finance Minister. We do note that Norway had a general elections on 9 Sept this year and the incumbent Labour Party coalition was dethroned after 2 terms.

The Norges Bank manages the largest sovereign wealth fund in the world, the USD 810 billion Government Pension Fund Global and they have been on a diversification drive since last year. Its main purpose is to avoid overheating the onshore economy by buying offshore assets because the government has a 4% rule which limits the public spending from the fund. Yet the 4% represents a larger sum each year as the fund size swelled.

The only reasons I can pick up for the slide in the Norwegian Krone and, to a lesser extent, the Swedish Krona, is that both their economies have hit a soft patch and Eurozone is improving, Cypriots and Greeks moving their money home ? There are no major currency moving acquisitions of flows otherwise that have been reported since Sept.

And since I do not trade these currencies, only to check them once in a blue moon, I realise how volatile they can be because of one factor – ILLIQUIDITY. They are not on many a hedge fund’s radar and does not fall under the Majors or EM, NOK and SEK are part of the larger world of “Smalls” major currencies of which NZD is favoured for their higher interest rates.

EUR/NOK traded to a new 3 year high last fortnight after the ECB, a level not seen since Jan 2010 and is starting to look pretty stretched even with the Norges Bank warning yesterday.


Since the NOK is not a speculative currency, I would venture to guess that the fx is perhaps more influenced by demand and supply factors than say, central bank motives.

I favour buying the NOK on weakness.

* NOK has a slight correlation with OIL and WTI is finding support at 93.00.
* The Norges Bank’s extension into EM got them scared after the mini crisis in June/July (they were last seen splurging on Spanish government bonds).
* The new right wing government talked of splitting the fund initially due to its size.
* The warnings of a slowdown today will mean that the country will have to revert to stimulating their economy onshore which is a reversal of fund flows (strengthening NOK) defying a potential rate cut because a rate cut weakens a currency which is matched with slower government revenues that will retard the pace of offshore investments.

It is a radical idea but worth exploring. I am putting USDNOK on my radar to sell for a pullback.

Extra :

NOKMYR and NOKSGD also look like a decent bets to me on any dip in prices going into the Norges Bank rate decision on 5 Dec, month end NOK rebalancing against USD on its “oversold” status, coupled with Malaysia’s keen medium term drive to boost their offshore investments.