USD/NOK: Krona spikes after Norges Bank signals possible rate hike

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on Dec 17, 2020
  • The USD/NOK pair declined sharply today after the Norges Bank interest rate decision.
  • The bank expects to hike interest rate earlier than previously expected.
  • That's because the Norwegian economy is recovering faster than earlier expected.

The USD/NOK dropped to the lowest level since July 2019 after the Norges Bank hinted at a possible interest rate hike in 2022. The pair is trading at 8.5773, which is 30% below the year-to-date high of 12.1212.

USD/NOK
USD/NOK and EUR/NOK

Norges Bank delivers hawkish interest rate decision

The Norges Bank was the second major central bank to release its final interest rate decision after the Swiss National Bank (SNB).

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The bank decided to leave the main interest rate unchanged at 0.0%, where it has been since April this year. But, the bank said that it will possibly start hiking interest rates earlier than expected, possibly in 2022. As such, it becomes the first major central bank to hint about potential rate hikes. Governor Oystein Olsen said:

“The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalising.”

Norway has weathered the Covid-19 pandemic better than most of its Nordic neighbours. For one, it has only recorded more than 42,000 cases and more than 402 deaths. This is a sharp contrast to Sweden, which has recorded more than 349,000 new cases and more than 7,000 deaths. 

As a result, the country dropped by 5.2% in the second quarter (vs EU’s decline of 14.7%) and then rebounded by 4.7% in the third quarter. Other metrics like retail sales, unemployment rate, and industrial production have also been great.

Further, the Norwegian economy has also received a boost from higher oil prices. Brent has soared to more than $50 from the year-to-date low of $16 while the West Texas Intermediate (WTI) has moved from below zero to the current $48.

USD/NOK technical outlook

USD/NOK
USD/NOK technical analysis

The USD/NOK pair has been in a strong downward trend this year mostly because of the weaker US dollar, higher oil prices, and the strength of the Norwegian economy. The hawkish Norges Bank has also contributed.

On the four-hour chart, the price is slightly below the 25-day and 15-day exponential moving averages while the Relative Strength Index (RSI) has moved below the oversold level. As you can see in our free forex trading courses, this is a sign that bears are prevailing. Therefore, in the near term, the pair will continue falling, with the next key support being at 8.500.

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