Norges Bank (NB) was surprisingly hawkish on Thursday, removing the risk of a near-term rate cut and raising its GDP and CPI inflation forecasts. As such, NB is distancing itself from the ongoing 'currency war', being one of the few central banks out there with a hawkish bias.
The market is too pessimistic about Norway's GDP growth on the back of falling oil investments. We expect Norway's GDP growth to be 2.4% in 2014 and 2.2% in 2015 due to higher public expenditure, rising residential investments, easy credit conditions and higher global growth.
We expect relative growth and carry to support the NOK in a world of low global growth and zero interest rates. We forecast EUR/NOK at 8.10 in 1M, 7.95 in 3M, 7.85 in 6M and 7.75 in 12M.
Leveraged funds should buy downside 3M zero-cost ratioed EUR/NOK seagulls. Norwegian real money funds should raise FX hedge ratios on USD and EUR risks and Norwegian exporters should raise FX hedge ratios on receivables in the USD, EUR and DKK.
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