USD/NOK at a turning point as Norges Bank remains cautiously optimistic

USD/NOK at a turning point as Norges Bank remains cautiously optimistic
Written by:
Crispus Nyaga
20th August, 08:53
  • The USD/NOK pair rose today after the Norges Bank delivered its interest rate decision.
  • The bank left interest rates unchanged as it had guided in its monetary policy document in June.
  • It also sounded cautiously optimistic, unlike other major central banks.

The USD/NOK pair spiked after the Norges Bank delivered its interest rate decision. The pair has climbed from the intraday low of 8.9025 to a high of 8.9593, which is the highest it has been since August 12.

USD/NOK
USD/NOK rises after Norges Bank decision

Norges Bank leaves rates unchanged

The Norwegian central bank left interest rate unchanged at zero per cent as most analysts were expecting. It also left the overnight lending rate at 1% and the reserve rate at minus 1%.

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In its most recent monetary policy statement, the bank had guided that rates would remain at the current level for the next few years, followed by a gradual tightening.

In the statement released today, the bank lamented that the Norwegian economy is going through a “deep downturn.” However, it said that recent data has shown that the economy has started picking up. For example, household consumption, personal services, manufacturing and services activity have bounced back. Similarly, crude oil prices have bounced back from their March lows. According to Governor Oystein Olsen:

“The Committee’s assessment of the outlook and balance of risks suggests that the policy rate will most likely remain at today’s level for some time ahead.”

Still, the bank warned that the labour market appears to be weaker than it had expected. In July, the country’s unemployment rate rose mostly because of seasonal effects. Also, employment has fallen as more companies adjust to the new normal. Also, consumer prices have been under pressure while the overall inflation is low. However, the underlying inflation has risen above the bank’s target.

By leaving interest rates unchanged, the Norges Bank has done what other central banks have done. Earlier today, the People’s Bank of China left the policy rate at 3.85%. The Federal Reserve, European Central Bank, and the Reserve Bank of Australia have all left rates unchanged. In a note, analysts at ING said:

“Norges Bank stands out as one of the more cautiously optimistic central banks at the moment. Their latest outlook published back in June saw policymakers revise up their forecast for 2020 GDP to ‘only’ a 3.5% decline.”

Fortunately for Norway, the number of coronavirus cases has started to fall in the country. Also, business activity in its neighbouring countries has started to pick up. Further, crude oil price has stabilised at about $45.

USD/NOK technical outlook

USD/NOK
USD/NOK technical analysis

The USD/NOK pair reached a year-to-date high of 12.1252 in March this year. Since then, the price has been in a sharp downward trend, and this week, it reached a low of 8.7900, which was the lowest level since January. On the daily chart, the price is below the 50-day and 100-day exponential moving averages.

Also, it has moved slightly above the descending trend line that is shown in black. Therefore, because of the Doji pattern that the pair created on Tuesday, I suspect that the price will continue rising as bulls aim for the next resistance at 9.200.

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