- The USD/NOK pair rose by more than 1.35% mostly due to low crude oil price.
- Analysts blamed the low oil prices to the tensions in China and Hong Kong.
- Other oil currencies like the Russian ruble and Canadian dollar also weakened
The USD/NOK rose by more than 1.35 per cent as the price of crude oil dropped sharply during the Asian and European sessions.
USD/NOK jumps after crude oi price l tumbles
Norway is one of the biggest crude oil exporters in Europe. According to Worldometer, the country produces more than 2 million barrels making it the 13th biggest producers. Most of this oil, about 1.7 million barrels, is exported.
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Therefore, the price of crude oil and the Norwegian krone tend to have a close relationship. In most cases, the krone falls when the price of oil declines. Indeed, the USD/NOK pair has risen by more than 14 per cent this year. On the other hand, the Swedish krona has weakened by only 3 per cent.
Other oil currencies have dropped too. The Russian ruble, Mexican peso, and Canadian dollar have declined by 18%, 22%, and 8% respectively this year.
The price of crude oil dropped sharply today as investors reacted to the new geopolitical crisis caused by China. Brent dropped by 4.7 per cent to $34.40 while West Texas Intermediate (WTI) dropped by more than 5 per cent.
There are two main reasons why the crude oil price has fallen. First, China announced that it was withdrawing its growth target for the year. The government also announced that it would issue treasury bonds worth more than $140 billion to support the ailing company. Analysts interpreted the new decision as a signal that the country would put less emphasis on infrastructure spending. In a statement to CNBC, Stephen Innes, an analyst said:
“The commodity market was looking for a bigger infrastructure pump from the NPC. So there is bound to be an element of disappointment.”
Norwegian krone mirrors the Hong Kong dollar
The USD/NOK also rose because of the brewing crisis in Hong Kong. According to reports, the Chinese government plans to bypass Hong Kong law and set up a security operation there.
The argument is that the new policy will lead to protests in Hong Kong and the geopolitical crisis between China and the US. Such a crisis would also affect the trade deal that was signed between the United States and China in January. The risk is that such a trade war will affect the global economy and lower the demand for oil.
In recent days, the USD/NOK has been falling because the oil market has been improving. Recent data from the American Petroleum Institute (API) and the Energy Information Administration (EIA) showed that inventories in the US are falling. Similarly, data from Baker Hughes showed that US oil producers were cutting their rigs at the fastest pace in history.
The low crude oil price and the coronavirus pandemic have affected the Norwegian economy. Recent data shows that the economy contracted by 2.1 per cent in the first quarter. And, while the government has unleashed an unprecedented stimulus package, analysts expect the weakness to persist.
USD/NOK technical forecast
The USD/NOK is trading at 10.0650, which is significantly lower than the YTD high of 12.1245. On the daily chart, the pair has been on a downward trend, fuelled by the rising crude oil price. The current reversal happened after the pair reached the 61.8 per cent retracement. Also, the price is stuck along the 100-day exponential moving average.
Therefore, I expect the bearish trend to continue if the price manages moves below the 61.8% Fib and the 100-day EMA at 10.000.