The krone has not been weaker since last autumn. The mood in the world’s financial markets has deteriorated much.
On Tuesday morning, the krone is quoted at 8.97 against the dollar and at 10.57 against the euro. We have to go back to November 20 last year to find a weaker krone against the dollar (see graph below), to the end of December to find a weaker krone against the euro.
A weaker krone is good for Norwegian exports, because the goods we sell abroad are relatively cheaper. The weak krone is also good for the Petroleum Fund, which invests its funds abroad.
But the downside of the medal and the bill is that we have to pay more for the holiday trips abroad and the imported goods, such as cars. Norway has a large import, and the imported goods affect over 30 percent of the total price increase.
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Currency strategist Magne Østnor in DNB Markets gives a full description of the weakening of the krone in Tuesday’s morning report. He writes that the weakening has accelerated in recent weeks, but the weakening of the krone has actually been going on since the end of April.
During this period, the krone has weakened against almost all other currencies in the world. This weakening came after the krone strengthened against most currencies since the turn of the year.
And why does the krone weaken? According to Østnor, the reasons are quite obvious. We are witnessing a change of mood. There is a growing fear that infection growth and weaker vaccine progression will slow down the ongoing upswing in the world economy.
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Stock market fall
We also do not get help from the stock exchanges. Monday was the worst day on the Oslo Stock Exchange so far this year, with a fall of 2.4 percent. Several leading European stock exchange indices were down around 2.5 per cent. A close connection has been shown between the krone development and the development in the American stock market.
The krone is among the currencies that are most vulnerable when the stock markets take a hit. In the summer, turnover of Norwegian kroner is small, which amplifies fluctuations. It should be said that the Oslo Stock Exchange will recover on Tuesday morning after Monday’s fall.
Increasing uncertainty about the recovery also means that long-term interest rates are falling. The interest rate on the important US ten-year government bond has fallen from 1.73 per cent to 1.19 per cent since April, which has lowered the corresponding Norwegian interest rate. Such a large fall reflects a growing pessimism.
Fear of weaker economic growth also dampens the outlook for oil prices, which is not good for the oil-sensitive Norwegian krone. On Sunday, the OPEC countries agreed on a gradual increase in production going forward.
As a result, oil prices have been down nearly 7 percent since Monday and traded in the early hours of Tuesday at just under $ 69 a barrel.
Østnor writes that the world economy has long been characterized by a kind of synchronized optimism. Both budgetary policy and monetary policy – interest rates – have contributed to a sharp rise in world stock markets.
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Uncertainty about previous virus mutations has only to a limited extent affected the mood in the financial markets. But now the vaccines do not seem to provide the same protection against the infectious delta variant. It threatens the prospect of recovery.
The strong rise on the world’s stock markets has also increased the fall when the upswing is no longer one-way.
Market development has for a long time been good for the krone, as an almost doubling in the oil price over the past eight months. Norges Bank has signaled four interest rate hikes in the coming year. Expectations of interest rate increases strengthened the krone at the beginning of the year.
But DNB Markets believes that some of the krone strengthening is due to speculators buying kroner through the spring on the expectation of a further krone strengthening. The prospects for the Norwegian economy are still good, but Østnor writes that many have believed that the potential for krone strengthening has been reached.
In its forecasts from this spring, DNB Markets predicted a weaker krone. The brokerage house has nevertheless been surprised at how large the fall in both interest rates and the krone has been.
But can we hope for a stronger krone soon? No, Østnor writes that we know from experience that the krone often takes a long time to recover lost ground.