Krone weakens as oil price tumbles

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UPDATED: Norway’s currency, the krone, continued to weaken on Wednesday after the price of a barrel of Norway’s North Sea crude oil dipped below USD 47 on Tuesday. By midday Wednesday, it cost just over NOK 13 to buy one British pound, while a US dollar cost NOK 8.50, up from NOK 8.08 just a few days ago.

Norway's krone sunk along with oil prices again this week, but that's at least helping some exporters. PHOTO:

Norway’s krone sunk along with oil prices again on Tuesday, and it may weaken more over New Year. PHOTO:

The krone also fell against the euro, which cost NOK 9.40 on Wednesday. It was the first time in years that a British pound was so strong against the krone, at NOK 13.003.

Currency analysts said it was just a matter of time before the once very strong krone strengthens again, but in the meantime, it’s falling towards record low levels.

“When we raise our heads and look at the bigger picture, the krone is considerably weaker than what the fundamentals of the Norwegian economy should suggest,” Magne Østnor, currency strategist at DNB Markets, told newspaper Dagens Næringsliv (DN).

His firm, tied to Norway’s biggest bank, DNB, expects a stronger krone, but not before it may cost as much as NOK 9.70 for a euro shortly after New Year. That would be a level hardly seen since the euro was introduced, except for during a brief period around New Year of 2008-2009, when the finance crisis was sparking great market uncertainty.

On Tuesday the krone fell by 15 øre against all major currencies. Østnor blamed it on “the effect of lower oil prices in recent days.” Given the tumble from well above USD 50 to USD 46.68 at one point on Tuesday, Østnor said he was actually surprised the krone didn’t fall more. It continued to tumble on Wednesday, though, just as Norway’s biggest company, Statoil, was announcing a profit dive and unemployment figures were edging upwards.

There’s also speculation that interest rates may fall again, when the board of Norway’s central bank meets in December. That would further weaken the krone, but that’s what the central bank and many economists want right now.  The weaker krone, which traded at just around NOK 6 against the dollar early last year, can help revive Norway’s economy by making exports less expensive and more competitive. Norway’s tourist industry, the huge salmon and seafood business and a host of other exporters are delighted by the weak krone after so many years of record strength. They’re suddenly attracting more visitors and buyers from abroad.

If oil prices rise, however, the krone will strengthen because the Norwegian economy is still so dependent on the country’s oil industry. That could be good news to oil and offshore firms, currently stuck in the biggest economic slowdown in years. Berglund

  • RC

    I’m curious to know why the ‘analyst’ thinks the Kroner will swing back anytime soon? Perhaps just the human tendency to trust mean reversion or just the usual blind optimism seen in Norwegian financiers and real-estate agents!

    The case for further weakening

    -Base rates are higher in Norway than either the UK or US which implies greater scope for reductions (and devaluation in Norway)

    -Oil is expected to remain cheap for sometime to come; some observers even suggest a further drop

    -Global economic growth is in trouble

    -An inflexible and high cost workforce

    -An economy overly dependent on Oil

    -Non commodity economies are seemingly on the up (US, UK); the reverse for oil/commodity biased economies (Norway, Canada, Russia, others). More re balancing to come for commodity rich economies. Chinese demand no longer providing a price floor for most products.

    The case for strengthening

    -The oil fund!

    -An economy overly dependent on Oil (if the price once more spikes)

    -Another credit crunch whereby NOK would be a safe haven for a while

    I’d argue the case for a weakening NOK is the more likely.

    All things being equal I think we are probably at an appropriate FX rate right now. In fact, if oil stays where it is and if as expected the US, UK and other non-commodity economies tighten rates then NOK, CAD and RUB will further decline. In the case of Norway there is no native industry comparable to oil that can fill the void.

    The fact that NOK has not strengthened against GBP despite the UK posting weak GDP revisions and pushing out rate rise expectations speaks volumes for the view of the Norwegian economy.

    All that said, the economy is still doing well despite shedding jobs so no need to panic. But the days of the strong Kroner are I’m afraid over for good.

    • frenk

      Is the economy doing well? The DNB bank is preparing for large numbers of personal and business bankruptcys?

      • RC

        Ah well, it’s all relative. Ask someone in France or Spain and Norway looks a picture of economic health. Again, all really down to the potential of the wealth fund and it’s implied budget surplus.

        Relatively speaking from a Norwegian’s perspective however it will certainly be a bumpy ride compared to the previous decade. But the recent period has been an exception for Norway as opposed to the rule.

        Arguably Norwegians have already taken a fair amount of pain through 30%+ devaluation but more of that is still to work it’s way through. No more expensive holidays, iphones and imported cheese! Back to cabin holidays with pizza and sausages methinks.