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Commerzbank’s Michael Pfister analyses NOK/SEK through oil-price sensitivity and rate expectations. He finds the Norwegian Krone reacts more strongly to oil than the Swedish Krona, while Riksbank expectations adjust more to oil shocks than Norges Bank. If the Strait of Hormuz reopens sustainably, he expects SEK to appreciate significantly against NOK as oil falls and rate hikes are priced out.
Hormuz scenario favours Swedish Krona
“This relationship between oil prices, interest rate expectations and currency performance is likely to be reflected the most in one currency pair: Since the start of the war, the Swedish krona has lost significant ground, while the Norwegian krone has been the top performer among the G10 currencies. Does this mean that if an agreement is reached, the Swedish krona will appreciate and the Norwegian krone will depreciate?”
“The data clearly show that an increase in oil prices was accompanied by Swedish krona depreciation, while the opposite was true for the Norwegian krone. But the relationship was significantly more positive for the Norwegian krone than negative for the Swedish krona. The former is likely obvious, while the latter stems from Sweden’s relatively low dependence on energy imports: the difference between energy imports and exports as a percentage of total exports is -1.8% (by comparison, Norway’s figure is 57%).”
“This means that the Norwegian krone is more affected by falling oil prices than the Swedish krona is affected by rising oil prices. At this point, however, a second factor comes into play. Interest rate expectations for the central banks of both countries have essentially followed the pattern I demonstrated last week.”
“Both currencies are likely to be affected as interest rate hike expectations are priced out, though the Swedish krona will probably be impacted slightly more. In other words: If the Strait of Hormuz opens sustainably, the Norwegian krone will be affected by falling oil prices and the pricing out of interest rate hike expectations. The effect on the Swedish krona is more balanced; however, falling oil prices are likely to offset the correction in interest rate expectations resulting in a slight SEK appreciation.”
“In short, should an agreement be reached, the Swedish krona is likely to appreciate significantly against the Norwegian krone.”
