BNY analysts see limited upside for NOK despite hawkish policy and energy trade improvements due to modest FX purchases.
The Norwegian Krone faces constrained upside despite improved oil and gas terms of trade and a hawkish Norges Bank, according to analysts. Elevated foreign exchange holdings and reduced non-oil budget purchase needs limit the central bank’s support for NOK.
Norges Bank’s daily FX purchases in Q2 were the lightest since restarting 12 months ago, with July’s requirement set at NOK 400mn per day. High energy receipts further reduce the need for NOK buying, tempering potential gains despite the bank’s hawkish stance in Western Europe.
EUR/NOK remains just 2.5% above its 12-month low, with analysts favoring energy equities over NOK exposure. Norwegian energy stocks comprise 29% of the MSCI Norway Index, compared to 4.3% for MSCI Europe.