Even though oil prices have been creeping upwards and Norway’s krone has strengthened a bit, at least one currency exchange strategist thinks the recovery is short-lived. By the end of the year, he thinks the US dollar will be so strong that it will cost as much as NOK 10.
That would be up from Monday’s NOK 8.43 and Tuesday’s NOK 8.56 at mid-afternoon. Monday’s level, along with those last week, was stronger for the krone than it had been for a long time, but it didn’t last long.
“We think the strengthening that we’ve seen so far this year will reverse somewhat,” Nils Kristian Knudsen, currency strategist at Handelsbanken in Oslo, told newspaper Dagens Næringsliv (DN). “We don’t see stronger kroner before 2017, and our prognoses show that it’s the dollar that the krone will weaken against the most.”
Knudsen pointed to divergent monetary policy. The US central bank (the Federal Reserve) is guiding interest rate increases in the near future, while other central banks have warned of low or lower interest rates.
Interest rate announcement later this week
Norway’s central bank (Norges Bank) is due to update its key policy rate on Thursday, and most analysts and economists predict the bank’s executive board will lower it, to just 0.50 percent from its current level of 0.75. One of the goals is to keep Norway’s currency relatively weak to maintain the increase in competitiveness for important export products like seafood, metals and timber.
Handelsbanken thinks the krone will weaken most against the dollar but also slightly against the euro, the Swedish krone and the British pound. The latter won’t go back about GBP 13 like it did last year though. Knudsen and his colleagues instead see it costing around NOK 12.26 by and through the second, third and fourth quarters.
Handelsbanken predicts the euro will cost NOK 9.50 during the same period while the dollar will be more volatile: From around NOK 8.50 now to NOK 9.05 in the second quarter, NOK 9.50 in the third quarter and NOK 10 in the fourth quarter.
Upturn in 2018
Knudsen thinks the dollar will then continue to cost around NOK 9.74 through 2017 and NOK 9 by the end of 2018, when many analysts think Norway’s current economic downturn will turn around.
Weak kroner will make it more expensive for Norwegians to travel abroad. Hotel prices are already much higher in terms of Norwegian kroner, especially in the US. A room that cost USD 150 just two years ago, for example, has already gone from NOK 900 to NOK 1,275 now, and will jump to NOK 1,500 by the end of the year if Handelsbanken’s predictions prove correct.
Norwegians keen on traveling haven’t been known, though, to change their plans very much because of exchange rates, according to Sverre McSeveny-Åril of the travel division at employers’ organization Virke. “Traditionally they haven’t,” he told DN. “In a new survey on travel habits, only 3 percent said exchange rates influenced their travel plans to a ‘large degree,’ and 14 percent to a ‘rather large degree.'”
Norway’s travel industry, meanwhile, benefits from a weaker krone, since it makes the country’s otherwise relatively high prices easier to swallow. Many hotels catering to tourists had a great year last year, while hotels catering to business travelers had a tougher year, especially those in Stavanger and elsewhere on the West Coast that cater to business travelers in the oil industry.