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Thursday, June 13, 2024

Krone weakens on Trump’s trade war

The value of Norway’s currency, the krone, fell again during the night to its weakest level against the US dollar in more than three years. The still-stong Norwegian economy doesn’t help when markets react negatively to US President Donald Trump’s trade war with China.

Norway’s krone sunk during the night, especially against the US dollar, after US President Donald Trump slapped more new import taxes on Chinese goods. ILLUSTRATION: Norges Bank

It didn’t take long for stock markets and oil prices to fall after Trump announced new tariffs on Chinese imports. Lower oil prices always affect Norway’s currency because of the country’s dominant offshore oil industry.

The US will also, from September 1, be imposing new 10 percent import duties on 97 percent of all goods exported from China to the US. “Now we’re talking full trade war,” claimed Kjetil Olsen, chief economist for Nordea Markets, on social media.

That set off strong reaction, with crude oil prices falling 5 percent and stock markets in both the US and Asia falling markedly as well. “Not surprisingly,” according to Olsen, the krone fell, too. By mid-day Friday it cost NOK 8.92 to buy one US dollar, compared to around NOK 8.50 earlier this summer, and NOK 6 several years ago. It also fell against the euro, which cost NOK 9.90 at mid-day, but the euro has been more expensive earlier in the year.

Olsen said that when investors are uncertain, many will shy away from the Norwegian krone, which is a small currency. It’s also backed heavily by the value of Norway’s oil wealth, so when oil prices fall, it takes a toll on the krone as well.

Newspaper Dagens Næringsliv (DN) reported that the krone hasn’t been so weak against the US dollar since January 2016. It’s long been weaker than economists think it should be, given Norway’s strong economy, low unemployment and stable political system. Olsen noted, though, that summer is “a bad time for the krone,” with little liquidity in the markets. It’s also believed to have been affected by weak economic indicators from Sweden that weakened the Swedish krone, dragging Norway’s down as well.

Olsen think the weak krone may prompt Norway’s central bank to raise interest rates again, to make it more attractive. Norges Bank’s executive board has already raised rates three times during the past year, and signalled another increase this fall. Most other central banks, including the US’ own Federal Reserve, have lowered interest rates.

Norwegian companies exporting their goods and services abroad, however, like a weak krone because it can make Norway’s generally high prices more competitive on a currency exchange basis. Berglund



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