USD/NOK slides after the hawkish Norges Bank rate decision
- The USD/NOK pair dropped today after the hawkish Norges Bank interest rate decision.
- The bank left interest rates unchanged as most analysts were expecting.
- It also provided hints of a future interest rate hike.
The USD/NOK price dropped today after the relatively hawkish Norges Bank. The Norwegian krone is trading at 8.4400 against the US dollar and by 10.24 against the euro.
Norges Bank hawkish decision
The Norges Bank concluded its monetary policy today and did what most economists were expecting. It left interest rates unchanged at 0.0% and committed to continue supporting the country’s recovery.
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Notably, the bank still hinted at raising interest rates, potentially in 2021 or in the coming year. If that happens, the Norwegian Central Bank will be the first major bank to hike interest rates. In a note after the hawkish statement, analysts at Bloomberg said:
“With house prices on the rise and only a mild downturn from new virus restrictions we believe it’s right to factor in some probability of that first rate hike coming sooner than shown in the rate path.”
A hawkish Norges bank is usually bearish for the USD/NOK pair. That’s because it leads to more demand for the Norwegian krone as global investors look for yield.
Norway recovery in progress
Still, Norway is well-positioned to recover faster than its peers. For one, the price of crude oil has continued to rise in the past few months and is now targeting the $60 mark. Higher oil prices are usually positive for the krone because the country makes billions of dollars every year from oil exports.
Also, unlike other peer countries, Norway has the world’s biggest sovereign wealth fund with more than $1.3 trillion in assets. In fact, the government has relied on these funds to support the recovery. In the statement, the Norges Bank said:
“Underlying inflation is above the target, but the krone appreciation since March and prospects for low wage growth suggest that it will moderate ahead.
USD/NOK technical outlook
The USD/NOK is falling today because of the rate decision and the overall weaker US dollar. The dollar index has dropped by more than 0.30% ahead of Biden’s stimulus policies.
On the four-hour chart, the pair has moved below the 25-day and 50-day exponential moving averages. Bullish forex investors have also struggled to move the pair above the important resistance level at 8.6500. The Relative Strength Index (RSI) has also moved below the oversold level. Therefore, the bearish momentum on the USD/NOK will continue as bears target the YTD low of 8.36.