The krone has weakened sharply in recent days, foreign banks are now getting rid of Norwegian kroner.
On Thursday evening Norwegian time, you have to pay 10.01 kroner for 1 euro in the professional foreign exchange market (see graph below). It is the weakest krone exchange rate in a month against the currency of our most important trading partners.
Chief strategist Erica Dalstø in SEB tells Nettavisen Økonomi that there have been large krone movements in the krone exchange rate, from 10.56 for 1 euro on 19 August to 9.67 kroner on 20 October. A key word is the price of oil.
– The first strengthening of the krone was driven by the sharp rise in oil prices. At the same time, the market began to price interest rates from Norges Bank to a greater extent.
– When the rise in oil prices stopped, the mood in the krone market changed. There have primarily been sellers of kroner since then, even though interest rates have continued to rise, says Dalstø. Higher Norwegian interest rates make it more attractive for investors to invest in the Norwegian fixed income market.
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More expensive holidays abroad
But, when many want to sell money, it weakens the exchange rate. In isolation, a weaker krone is good for the Norwegian export industry and import-competing companies, because Norwegian goods will then be relatively cheaper compared with foreign goods.
The flip side of the coin is higher import prices and more expensive foreign travel. If you are going to a euro country, this trip has become 3.5 percent more expensive in four weeks.
Dalstø says the krone sales are probably due to foreign banks taking profits.
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Historically weak
At the same time, the krone enters the season in a weak period where the krone has historically weakened sharply towards the turn of the year. This is a tendency that is becoming self-reinforcing.
– In other words, this is something more than an “oil story”, says the chief strategist.
But we also have important Norwegian players that affect the krone exchange rate. From Friday 19 November, Norges Bank will reduce the daily sales of currency on behalf of the government. So far in November, the central bank has sold currency every day and bought NOK equivalent to NOK 700 million. Now there are zero krone purchases for the rest of the month.
The change is due to a reduced need for transfers from the Petroleum Fund – the Government Pension Fund Global – to the central government. The high oil prices mean more in export revenues in the treasury and thus higher foreign exchange revenues.
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Less tailwind
Norges Bank has for a long time sold currency and bought kroner, because politicians have spent many billions from the Petroleum Fund during the corona crisis. Now the measures have been stepped down, so that the krone purchases disappear.
When asked what it means for the krone exchange rate, chief economist Kjetil Olsen in Nordea Markets answers briefly:
– It gives less tailwind to the crown.
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