USD/NOK: Norwegian krone falls by 1% after historic oil supply cut deal
- USD/NOK rose by almost 1% as the market reacted to the new OPEC+ deal.
- The Norwegian government announced plans to ease existing coronavirus lockdown.
- The Norwegian government and Norges bank have also announced several stimulus packages to cushion the economy.
The USD/NOK pair rose by almost one hundred basis points as the market digested the OPEC oil deal and the reduction in the number of coronavirus cases in Norway. This price action made the Norwegian krone the worst-performing currencies in the developed countries today.
USD/NOK rises by almost 1%
Norway starts partial reopening
According to Worldometer, Norway has confirmed more than 6,525 cases and 128 deaths. The number of new cases has dropped to about 116 from a peak of 400 in March. This is mostly because most of the country has been in a lockdown, with many businesses being shut.
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The economic impact of the disease has been stark. According to Markit, manufacturing PMI dropped to a historic low of 41.9 in March after rising to 51.6 in the previous month. The unemployment rate rose to 10.4%, which is the highest it has been since the second world war.
As with the United States, the number of Norwegians applying for unemployment benefits has risen by more than 100% in the past few weeks. Early forecasts show that the economy could shrink by 1% this year.
In response, the Norwegian government and the Norges Bank have initiated several measures to cushion the economy. The Norges Bank, which was notoriously hawkish a few months ago, slashed interest rates to 0.25%, its lowest level ever. The bank has also joined other central banks to swap its currencies with the Federal Reserve.
The government, on the other hand, has announced a multibillion-dollar stimulus package. The package will help stabilise the economy by providing wages, financial support to companies, and increasing welfare benefits.
Additionally, the government has announced plans to restart the economy. Last week, it lifted restrictions on some schools, some businesses, and some sports. Still, there are fears that the number of cases will start to rise as people start to socialise.
Questions raised about OPEC+ deal
Crude oil is another reason why Norway’s economy has struggled this year. It is also the reason why the USD/NOK pair has risen by more than 13% year-to-date.
Over the weekend, OPEC members and G20 made a historic deal to cut production by almost 10 million barrels per day in May and June. Curbs on supply will continue until December this year. In response, the price of Brent and WTI rose by about 1% in early trading.
The underwhelming performance is probably because the market is sceptic about the deal because it does little to address demand. With most airlines doing no business and with most cities being on lockdown, there are chances that demand will lag.
“Don’t be surprised if the war over market share between the Saudis, the Russians and the Americans resumes once the lockdowns ease and people want oil again. This is a temporary truce rather than lasting peace between the three biggest producers.”
Crude oil matters significantly to Norway, which exports more than 1.2 million barrels of oil every day. The industry also supports more than 200k Norwegians directly.
Crude oil price falls after OPEC+ deal
USD/NOK technical outlook
On the daily chart, the USD/NOK pair has been on a downward trend since March 19, when it reached a high of 12.1400. Since then, the pair has moved to 10.1235, which is below the 50% Fibonacci Retracement level. The pair is also above the 100-day and 50-day exponential moving averages while the RSI has been falling. The likely scenario is where the pair tries to test the 61.8% Fibonacci Retracement level at 10.000.