Analysis

Our specialists will come in order to perform the analysis of your company’s economic situation any time that is more convenient for you.

Ready solution

You will make money in no time.

Programme "Bonds of developing countries"

Nordic Currencies Struggle As Risk Appetite Sinks

Nordic currencies are struggling against the euro Tuesday amid weaker oil prices, fragile risk appetite and continued concerns over the nearby Baltic region.

The Norwegian krone dropped out of a tight range to hit a five-month low against the euro in early trading, while the Swedish krona hit a two-month low. The two currencies later rebounded against the dollar as it sank in New York trading hours, but they remained depressed throughout the day against the euro, which is a key currency for the region in terms of trade.

This weakness has taken analysts by surprise, especially as the Norwegian krone gained last week after its central bank cut interest rates. That step initially hit the currency, but traders quickly bought it on dips.

Now, spells of weakness in global equities and a sharp decline in the price of Brent oil futures in the last two trading days are weighing the Norwegian and Swedish currencies down. Persistent concerns about nearby Latvia, where Swedish banks are prominent lenders, are also a factor. Light trading volumes and seasonal factors are amplifying the declines.

"In the longer term, we should see a stronger Norwegian krone as long as the oil price keeps up, but for the moment it is weakening and I'm really not sure where it's heading," said Erik Bruce, an analyst at Nordea in Oslo.

Bruce added that there is little in the way of local data due in the coming days to offer fresh direction, leaving the currencies at the mercy of swings in risk appetite and stock markets for now.

Sunnier days in the region won't help the Swedish krona's prospects either. As Swedish bank SEB noted Tuesday, the currency generally suffers during the summer because of reduced export demand for Swedish goods, lighter global liquidity, and greater outflows than inflows of tourists.

The krona "will probably weaken further as we head into the holiday season," said Anders Soderberg, an analyst at the bank. Lighter trading volume also tends to hit the Norwegian currency, said Bruce at Nordea.

Like many other analysts, Soderberg remains upbeat about the medium- and long-term prospects for Sweden and its currency, expecting an eventual return to health for Sweden's small, open economy.

Many also feel the currency has weakened more than merited, considering the Swedish government's stable public finances and its extensive guarantee program for the banking sector.

Oil revenue also ensures that Norway is among those with the best public finances in the world - a firm support for Norway's currency in the medium term.

Still, risks for the two currencies "in the near-term have clearly risen" said economists at UniCredit in a research note Tuesday, as Baltic woes continue to weigh.

Economists at Danske Bank noted recent comments from a representative of the International Monetary Fund that Latvia's economy is "in worse shape than anticipated." Worries over Latvia could flare up again "in the coming days", the bank said.

At 1430 GMT, the euro was at NOK9.1138, from around NOK8.92 early Monday in Europe, marking a 2% rise. The euro was at SEK11.1325, 0.8% up from SEK11.0309.

We offer

Currency: Currency exchange.

© 2010 Financial services company ClearingHouse LLC.
All Rights Reserved.