SNB decision on CHF causes ‘chaos’ for NOK – reports
The Swiss National Bank decision yesterday to effectively devalue the Swiss franc has led to chaos hitting trading in the Norwegian krone as one of the few other currencies investors are willing to buy.
Norway’s central bank (Norges Bank) is yet to signal a retreat from a tighter monetary poilcy in light of ongoing strong domestic economic growth.
If it raises rates on 21 September, at the next meeting on monetary policy, then there is a chance the NOK could move higher still against currencies such as the euro.
At the time of its last interest rate decision on 10 August, the bank left its key rate unchanged at 2.25%. It justified its decision by stating: “The Norwegian economy is still growing at a robust pace and domestic developments have been broadly in line with that projected. This suggests that the key policy rate should be raised further.”
Domestic investors are acting under the burden of higher expectations given hydrocarbon firm Statoil’s discovering this summer of one of the biggest oil finds in the North Sea since the 1980s.
Because this one company accounts for about a third of the main Oslo stock index, it means that fund benchmarks tracking the Norwegian market will effectively be pushed to outperform, even as other sectors in the economy, such as fish and aluminium smelting have to try to compete on exports against other countries whose currencies have dropped sharply.
Switzerland’s central bank made the competition observation as part of the reasons for intervening in the currency markets on Tuesday 6 September.
By 7 September, currency traders in Norway said the situation on the floor was calming, but still remained tense, reported Dagens Næringsliv. The NOK continued to rise against the euro from its closing price of NOK7.53 per on Tuesday to 7.4830 through early trading on Wednesday.
Trading moved across a range of NOK0.25 through Tuesday, a level of volatility equivalent to that seen across the entire previous nine months. Trading volumes were three times the daily average.
However, there are mixed views on whether the NOK can take over the burden previously placed on the CHF. For one thing, few economists and traders in Norway believe the NOK has sufficient liquidity to properly become the new safehaven currency, Dagens Næringsliv suggests.
“At the same time the krone is sensitive to trends and expectations, and it requires relatively little of either to have an effect. All investors know this. It doesn’t take more than a single big investor to sell before a turning point can come,” Dagens Næringsliv quotes Inge Furre, chief economist at Sparebanken Møre.
He went on to dismiss those who believe the CHF is overvalued on the basis of purchasing power parity.
“Financial transactions determine the exchange rate of the Swiss franc, and not the relative price of hamburgers,” he said.