Norway’s World-Beating Krone Risks Catch-Up by Swedish Currency

A world-beating rally in Norway’s currency may soon lose steam as investors turn nervous on risky assets, according to the biggest Scandinavian bank.

Nordea Bank Abp recommends taking a short position in the krone against Sweden’s krona on concerns of a global market turnaround in the next few weeks. Both have soared along with equities in the past few months, making the former the biggest gainer among major currencies, though now it could be exposed to any pullback in oil prices.

“I am expecting some type of correction — all of my measures are screaming for a setback,” said Nordea analyst Morten Lund.

The currencies usually benefit in periods of positive market sentiment, with the krone correlated with oil prices given Norway’s dependence on crude production, and the krona driven by global trade growth given Sweden’s open economy. The two have stayed relatively in sync during the rally.

Nordea’s view contrasts with that of other Scandinavian lenders Danske Bank A/S and SEB AB, which are recommending long positions on the krone-krona pair. Danske sees a better “value proposition” for Norway’s krone based on the growing argument for a reflation trade, according to analysts including head of currency research Christin Tuxen.

Lund argues that markets “have got a bit too optimistic.” A second wave of the virus and geopolitical tensions could hit risk sentiment, while the lower liquidity during the summer holiday period also increases vulnerability to an equity sell-off, he said. That would leave the krone more exposed due to its strong relationship with oil prices, he added.

The krone-krona pair is at around 0.96, having slipped about 1% last week as Sweden’s currency started catching up. Lund sees a drop to 0.95 this week in any risk-off move.

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