USD/NOK upside limited as crude oil price bounces back

The USD/NOK pair is hovering near the lowest level this week as investors reflect on oil prices and the strong recovery of the Norwegian economy. The pair is trading at 8.8400, which is slightly above this week’s low of 8.7940. 

Oil prices and Norwegian recovery

Norway is one of the biggest oil producers in Europe. As a result, the Norwegian krone tends to do well in periods of relatively high oil prices. This week, the price of crude oil rebounded as the risk-on sentiment returned to the market. The price of Brent rose to more than $70, which was substantially higher than last week’s $66. 

At the same time, the West Texas Intermediate (WTI) rose to more than $68. This recovery happened as the risk-on sentiment resumed. As a result, the US dollar index weakened while the stocks jumped.

The USD/NOK is also reacting to the relatively strong Norwegian economy. Data published this week has shown that the economy is at a good place. Early this month, data showed that the country’s manufacturing PMI rose from 61.3 in June to 63.3 in July. This was a better performance than the median estimate of 59.5.

Additional data showed that the house price index rose by 8.5%, which is evidence that the housing market remains strong. The unemployment rate rose slightly to 5.1%. Meanwhile, consumer prices are rising, with the headline CPI rising from 2.9% in June to 3.0% in July. This increase was better than the median estimate of 2.9%. Core CPI, which excludes the volatile food and energy prices, rose by 1.1%. 

Meanwhile, the country’s consumer confidence rose in August. Therefore, these numbers point to a situation where the Norges Bank will hike interest rates in the coming months. 

With no data scheduled from Norway today, the USD/NOK pair will be driven by the US dollar. The dollar will react to the latest US personal consumption expenditure (PCE) and a statement by Jerome Powell. 

USD/NOK technical outlook

The four-hour chart shows that the USD/NOK pair moved from this week’s high of 9.1050 to a low of 8.7885. The pair is slightly below the ascending red trendline and the 25-day and 50-day exponential moving averages (EMA). It is also slightly below the 23.6% Fibonacci retracement level. 

Therefore, the pair may bounce back lower in the near term as traders attempt to retest the 38.2% Fibonacci retracement level at 8.6257.