- The Norwegian krone fell against the US dollar after Norway's inflation fell in March.
- The headline CPI rose by 0.7% (vs estimated 0.8%) while core CPI rose by 2.1%.
- Focus shifts to oil market where OPEC+ members will meet tomorrow to deliberate on supply cuts
The USD/NOK pair edged upwards from a three-week low as the market received weak inflation data from Norway. The focus among market participants is also on the upcoming OPEC+ meetings on crude oil.
USD/NOK pair rises on weak inflation data
Norway reports weak inflation data
Headline consumer prices were unchanged in March, as the country remained focused on the spreading coronavirus pandemic. This number was better than the contraction of 0.1% that happened in February but worse than the 0.1% gain expected by analysts. The Norwegian CPI rose by an annualized rate of 0.7%, which was also lower than the expected growth of 0.8%.
The closely-watched core CPI rose by 0.3% in March after rising by 0.5% in the previous month. The rate rose by 2.1% on an annualized basis. The core CPI excludes the volatile food and energy prices and is focused more by the Norges Bank.
According to Statistics Norway, most of the inflation was in the clothing and footwear sectors, which rose by 4.9% in March. It was followed by furnishings, household equipment, and routine maintenance, which rose by 1.4%. These gains were offset by recreation and culture and housing, which dropped by 1.0% and 0.9%. Across the sectors, consumer goods declined by 0.4% while services rose by 0.3%.
Norway producer price index (PPI) disappoint
The USD/NOK pair also rose because of the disappointing PPI data. The number measures the price of domestic produced goods that are sold in Norway and abroad. It is also an important measure of inflation.
The data showed that the PPI dropped by 12.6% in March. This was the worst reading since November 2019, when the number dropped to 13.8%. It was also worse than the previously-released 7.4%. According to Statistics Norway, the biggest price drop was in extraction and related services, energy, and refined petroleum, which dropped by 19.3%, 18.7%, and 13.9% respectively. This drop was offset by an increase in basic materials and machineries.
OPEC+ negotiations eyed
Norway is the biggest oil-producing country in Europe. The country produces more than 1.6 million barrels per day. This has helped it build the biggest sovereign wealth fund in the world, worth almost a trillion dollars.
As a result, the country has been hit hard by the recent fall in oil prices. As such, the recent rally of the Norwegian krone and the USD/NOK pair is because there are signs of supply cuts.
Russia and Saudi Arabia are said to be nearing a deal, which could be announced in a meeting tomorrow. Even before the meeting, there are signs that US is reducing its oil supplies. According to Baker Hughes, US and Canadian producers have shut down wells at the fastest rate since 2016.
More so, G20 oil ministers are expected to meet on Friday to continue these negotiations. In a statement to the Financial Times, Fatih Birol, the head of IEA said:
“It is coming to a level where it will have significant implications for the stability of the global economy and millions of workers employed in the oil and gas industry.”
All this raise signs of a deal being done. Still, there are risks that the deal will not support oil prices for long. For one, the world is currently oversupplied and the demand in most countries is almost inexistent.
Norwegian krone technical outlook
Looking at the four-hour USD/NOK chart shows that the pair is along the important 38.2% Fibonacci Retracement level, where it has found some support. Also, the Average True Range, which is a good measure of volatility, has dropped. This sends a sign of calm before a storm, which means that the pair could see significant moves in the near term. These moves will be mostly because of crude oil issues and the FOMC minutes and US jobless claims data.