Norway’s now-decorative currency, the krone, is getting stronger along with the country’s economy. It’s risen considerably against the US dollar and other key currencies just in the past few weeks, and economists predict that will continue.
“Things have been going much better (in the Norwegian economy) than expected,” economist Erik Bruce, chief analyst for Nordea Markets, told newspaper Dagens Næringsliv (DN) on Tuesday. “Last year we were talking about a possible interest rate cut. Now the fundamental conditions indicate a stronger krone.”
Danske Bank Markets also points to how the executive board of Norway’s central bank, Norges Bank, has kept interest rates steady instead of feeling a need to lower them to stimulate the economy. “The central bank’s position has changed considerably since we published our last currency prognosis,” Danske Bank Markets writes in its latest report. Now, it notes, both Norges Bank and Sweden’s central bank (Riksbanken) have removed the probability of an interest rate reduction. Other central banks, like Canada’s, are hinting that interest rates may be raised from their historically low levels.
Oil price ‘correction’
Meanwhile, the price of Norway’s most important and valuable export product, North Sea Brent crude oil, has risen despite a dip on Monday to just under USD 49 a barrel. Bruce thinks that’s the main reason for the krone’s rise last week. After trading at more than NOK 8.50 to the US dollar this past spring, it was only costing NOK 8.10 to buy a dollar on Tuesday morning.
Bruce notes that the oil price rise, which always boosts the value of the Norwegian currency, has nonetheless been “moderate” and he sees the last week’s movement as a “correction” because the krone was weak in relation to economic fundamentals. It’s also summer, with less active currency trading, so relatively few transactions can lead to significant swings in the krone’s currency exchange rate.
Bruce thinks the krone remains weak given the changes in Norway’s economic outlook from last summer to this summer. The country has survived the oil price collapse of three years ago, business optimism is rising and unemployment is down. While opposition politicians look for problems in their effort to win power away from the country’s current Conservative coalition government, most economists, analysts, business and industrial leaders think there’s much more to cheer about than complain over heading into the September election.
Bands on the run
A stronger krone will make Norwegian exports more expensive, and potentially less competitive, while it can also dampen Norway’s tourist boom. It may, at least, cheer music fans, though. Newspaper Aftenposten reported on Tuesday that several of the world’s biggest concert tours by bands like U2 and Cold Play have dropped Norway this summer, in part because the Norwegian krone was weak against their own currencies.
“Oslo attracted all the big tours earlier, but that was when the krone was much stronger,” concert arranger Peer Osmundsvaag of Atomic Soul told Aftenposten. “It’s not strong now, and then they (the bands) need bigger audiences buying more tickets. We can’t just raise ticket prices.” A lack of arenas large enough to accommodate tens of thousands of fans has also cut into the summer concert season.