NOK: Anticipating Possible Reduction in December FX Purchases

NOK: Possible reduction in December FX purchases

Norges Bank will announce the amount of daily FX purchases for December today. Our model estimate based on oil prices and petroleum revenue forecasts suggests purchases should be kept at 1,400mn for December.

However, it’s worth highlighting that Norges Bank scaled back FX operations quite substantially in December (compared to the previous month) over the past three years, more than what our model would have suggested. Last year, we thought lower FX purchases were also signalling some openness to easing pressure on NOK. Now, given the substantial support offered via higher rates, that is less likely and we still estimate relatively elevated FX purchases this year. That might change should NOK face fresh significant pressure or the Norges Bank turns more dovish on monetary policy.

NOK has been strong along with other high-beta currencies of late, and we are bullish on the currency in the medium term, but we suspect the rally has started too early. That is, however, only due to external factors, as markets have priced out the chance of a Norges Bank hike in December (20% priced in now) and a potential reduction in FX purchases in December is positive for the krone.