Norway’s already weakened currency, the krone, took a new dive on Tuesday, falling to its lowest level against neighbouring Sweden’s kronor in 20 years. The US dollar hasn’t been so strong against Norway’s krone since 2002.
It suddenly cost NOK 8.74 to buy just one US dollar by early afternoon on Tuesday. That up from NOK 8.40 just last week and NOK 7 earlier this autumn. The krone also weakened “considerably” on Tuesday against the euro, which now costs NOK 9.50. That’s up from NOK 9.30 on Monday morning.
“We have seen quite a lot of movement,” Joachim Bernhardsen, an analyst at Nordea Markets, told the website for newspaper Dagens Næringsliv (DN), dn.no. “This is a considerable weakening.”
The movement was perhaps most significant against the Swedish kronor, not least because so many Norwegians drive over the border to shop in Sweden, where prices generally are much lower than in Norway. For many years, Norway’s strong economy and strong kroner also gave Norwegian consumers a big exchange rate advantage. That disappeared as of Tuesday afternoon, when SEK 100 suddenly cost NOK 102.50.
Oil most to blame
The sharp decline in the price of oil, Norway’s most important export product, was being blamed once again for the weaker krone. Several other factors were also being mentioned by analysts, though, who noted that the slide began on Friday. That’s when Norway’s central bank, Norges Bank, published its “Regional Network” survey, which questions a stable of Norwegian businesses about their outlook several times a year.
The response was sobering, with many predicting harder times ahead and low expectations for any turnaround. Several expected cutbacks instead of growth, and economists noted that the survey reinforced Norway’s divided economy, with the oil- and oil-service industry hit hard while some non-oil sectors were more optimistic.
Later on Friday, OPEC leaders held a strategy meeting and did not agree on any oil production cuts. Oil prices began to fall and by late Monday, oil was trading at around USD 41 a barrel, one-third the price early last year.
Interest rates may fall again
Since the price of oil has such an effect on Norway’s economy, the decline ignited speculation that Norway’s central bank will once again cut interest rates, which already are at a record low level. The low oil price, compounded by expectations of even lower interest rates, sent the krone tumbling, as did new figures from state statistics bureau SSB showing a decline in industrial production in October.
Analysts expect the krone to remain volatile, not least until the central bank board meets to decide on interest rates next Thursday.