Norway’s currency, the krone, has been caught in another puzzling downward spiral this week that’s left analysts groping for explanations. Despite more positive economic indicators, the Norwegian krone fell to one of the lowest levels ever against the euro on Wednesday and remained weak on Thursday.
After trading at an already relatively weak level of NOK 9.48 against the euro just after the weekend, it suddenly cost NOK 9.79 to buy a euro on Wednesday afternoon. The krone regained some strength Thursday morning, but a euro still cost NOK 9.65 at midday. A US dollar, meanwhile, cost NOK 8.20, compared to NOK 7.83 just a few weeks ago.
The krone weakened against other currencies even when oil prices finally broke through the USD 60-per-barrel level and rose as high as USD 63 before tapering off. Rising oil prices generally make the krone stronger, not weaker, because of Norway’s ongoing dependence on its oil industry.
“This is very unique and very strange,” Bjørn-Roger Wilhelmsen, chief economist at Nordkinn Asset Management, told newspaper Dagens Næringsliv (DN). The paper reported that the krone has only traded at a weaker level against the euro on 11 earlier occasions since the euro was introduced in 1999. The euro hasn’t been as expensive against the krone as it is now since December 2014, right after oil prices collapsed and Norway’s central bank lowered interest rates.
Analysts have been puzzled by the krone’s weakness earlier this autumn as well, and they seemed fairly baffled this week. Magne Østnor, a currency exchange strategist for DNB Markets in Oslo, said he thinks Wednesday’s weakness was a continuation from a dive on Tuesday and that “the snowball began to roll.” He suspects some traders had bet on a stronger krone and had to “throw in their cards.” Østnor also thinks some importers had hoped for stronger levels and had to accept weaker ones.
He noted that there was no specific news that could weaken the krone. On the contrary, more positive numbers about Norway’s economy were released on Tuesday.
Another possibility is that foreign traders are spooked by the ongoing decline in housing prices after they’d reached record highs. “Most of us believe the housing market will land on its feet … but seen with other glasses, like American or Asian, the housing market scenario can be different,” Østnor told DN.
The value of the Swedish krone has also fallen this week, so the two Scandinavian currencies may have affected each other. “And there are signs that liquidity isn’t so good right now,” Wilhelmsen of Nordkinn Asset Management said. Oil prices have also fallen in recent days, even though their rise didn’t boost the krone much earlier.