USD/NOK: Norwegian krone suffers harsh reversal ahead of Norges rate decision
- The USD/NOK rose today on risk aversion as China reported new coronavirus cases in Beijing.
- Brent crude oil price declined by more than 2.65% while WTI has fallen by more than 4%.
- Investors are looking ahead to the Norges Bank, which will deliver its rate decision on Thursday.
The USD/NOK pair rose by almost 0.50% due to risk aversion after China announced a new cluster of coronavirus infections. The pair is trading at 9.6780, which is higher than last week’s low of 9.1960.
Norwegian krone falls as crude oil declines
Norway is the second-biggest oil-exporting country in Europe after Russia. It exports more than 1.1 million barrels every day, making the Norwegian krone overly sensitive to oil prices. For example, the currency reached its all-time low against the US dollar on March 19, when the price of oil was in a sharp freefall.
Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.
Today, the price of crude oil is in a sharp decline, with Brent and WTI falling by 2.65% and 4% respectively.
This decline is mostly because investors are concerned about the demand for crude oil after China confirmed a new cluster of the virus in Beijing. According to the health ministry, the number of cases in Beijing has jumped by almost 100. The city had reported no cases in the past seven weeks.
There are also concerns about rising cases in the United States. In Florida, the number of cases increased by 25,000 during the weekend. The number of infections has been rising in several other states like Alaska, Tennessee, Arkansas, and North Carolina. Worse, these cases could increase in big cities following weeks of protests.
Other crude oil currencies declined too. The Canadian dollar, Mexican peso, and the Russian rouble are down by 0.30%, 1.57%, and 1% respectively.
USD/NOK gains ahead of Norges Bank
The USD/NOK also rose ahead of the critical meeting by the Norges Bank. The bank will be one of the several central banksthat will release their rates decision this week.
Analysts expect the bank to leave interest rates unchanged at zero and issue an upbeat statement. This is because the price of oil has recovered slightly since its previous meeting. Also, recent data from the country has been a bit better. For example, since the lockdown ended, mobility in Norway has normalised, consumer spending has jumped, and the housing sector has started to recover.
Additionally, the global economy seems to be recovering. For example, all the manufacturing and services PMI data released this month were better than the numbers released in April. More so, data released from China todayshowed that retail sales, fixed-asset investment, and industrial production were improving. Most importantly, business activity is improving in Europe and in Norway’s Nordic neighbours. In a report published during the weekend, analysts at Danske Bank said:
“We, therefore, expect the new interest rate projections to show the policy rate rising gradually from the end of 2022. Of course, there is also a risk that Norges Bank will deem it premature to move away from signalling unchanged interest rates only five weeks on from the May meeting.”
USD/NOK technical outlook
On Wednesday last week, the USD/NOK pair formed a Doji pattern. As you can learn in our short-term stock trading courses, a Doji is usually a bullish pattern when it appears during a downtrend. On the daily chart, the price is slightly below the 50-day and 100-day exponential moving averages. It is also slightly below the 38.2% Fibonacci retracement level and the psychological level of 10.00. Therefore, there is a possibility that the price will continue moving upward ahead of the Norges Bank decision.