Oslo, Norway – A dramatic shift in the buying and selling activity of Norway’s largest financial players is the primary driver behind the krone‘s recent weakness, according to a new analysis from Nordea. The bank’s research identifies a significant reversal in currency strategy by Norges Bank, the Government Pension Fund Global, and Statoil (now Equinor), moving them from substantial net buyers to net sellers of the norwegian krone (NOK).
The krone’s decline impacts Norwegian consumers through increased import costs and potentially fuels inflation, while also affecting the returns on investments for international funds holding Norwegian assets. Nordea’s findings challenge commonly cited explanations for the krone’s depreciation, such as capital flight to Switzerland or narrowing interest rate differentials, and offer a detailed look at the scale and speed of the currency shift. Understanding these dynamics is crucial for businesses, investors, and policymakers navigating the current economic landscape.
Nordea reports that these three key players transitioned from collectively being large net buyers of NOK to sellers. norges bank alone had to liquidate approximately 70 billion NOK previously earmarked for pandemic-related expenses.
“For the first time in history, these three players switched from being large net buyers of NOK to becoming sellers,” Nordea stated in its analysis.
The shift wasn’t just a change in direction,but also in velocity. The combined activity moved from purchasing NOK equivalent to 8.5 billion USD monthly to selling equivalent to 2.5 billion USD per month – a net change of NOK 125 billion monthly, or NOK 6 billion per trading day (calculated using current NOK values). This represents 10-15% of the total currency exchange reported by Norges Bank.
As a direct consequence, the krone experienced a marked weakening throughout the latter half of 2022 and the first six months of 2023. Nordea anticipates the krone’s value in the coming year will largely mirror fluctuations in oil prices.
The bank dismisses theories attributing the krone’s fall to “tax flight” to Switzerland or shrinking interest rate gaps, asserting that the sales executed by these three major Norwegian NOK players significantly outweigh those factors. Senior strategist Sara Midtgaard of nordea, as pictured by Heidi Schei Lilleås, led the analysis.
