Source: cTrader FXPro
As you can see, we did go as high as 1.03 + previously, so this could be quite a nice trade to get into - especially when you see that there is fairly strong support nearby at 0.996. This is obviously also a trade where you can pick up a huge amount of carry over the medium term. The interest rate picture in Norway is one of rising rates whereas in Sweden we are in a fundamentally disinflationary environment and a cut to rates still seems more likely than a hike.
At its last policy meeting, the Norges Bank signalled a hike was possible at its December meeting too, and this would take the rate to 0.5%. In Sweden, on the other hand, inflation actually came in cooler than expected in September at 2.8% on the Riksbank's CPIF preferred measure. The same certainly cannot be said for Norway (chart below)
Source: Refinitiv
When we consider market implied rates, looking at the 3m1y IRS for example NOK is at a might 1.745% compared to 0.283% in Sweden. All evidence suggests Norway is on a much quicker hiking path than Sweden.
Sure, rates are not the only drivers of currencies, and expectations of growth and oil prices etc all have their part to play, but to me this is an easy trade, and the NOK has just been retracing from its highs for no good reason. Sure, there has been a pullback in oil prices over recent weeks from their absolute highs, but nobody can tell me that $80 oil is going to be bad for the NOK and for me to seriously believe that. Prices are way higher than they were pre-pandemic and this will continue to drive inflows to the currency in the coming months.
NOKSEK and Oil haven't been that correlated by the looks of the last 2 years.
Source: Refinitiv
It's all to play for in my view, and I'd get long NOKSEK, with a SL at 0.995 and a TP at 1.035.
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