On Thursday, the price of one US dollar dipped below 10 Norwegian kroner for the first time since last winter.
It didn’t last long, but the Norwegian krone has been gaining strength consistently over the past week, possibly due to less uncertainty surrounding inflation and interest rates.
When a dollar “only” cost NOK 10.20 last week, Nils Kristian Knudsen, currency strategist for Handelsbanken, told the newspaper Dagens Naeringsliv (DN) that inflation was unexpectedly high for both the market and Norges Bank.
The price on Thursday morning was NOK 9.92. On Thursday, one euro cost NOK 11.14 (down from NOK 11.72 earlier this month) and one pound sterling cost NOK 12.82, compared to over NOK 13 in recent weeks.
Knudsen and others believe that the high inflation rate prompted a “repricing” and reevaluation of the future development of Norwegian interest rates. They are likely to continue increasing, and the krone will be better able to withstand market uncertainty.
In the meantime, the US inflation rate has declined, suggesting that US interest rates may decline and the dollar will become less costly.
The price of a barrel of crude oil from Norway’s North Sea has increased to nearly US$80 per barrel, which almost always strengthens the value of the country’s currency.
Also anticipated to decline is Russian oil production, which can continue to drive up North Sea crude oil prices.
After a period of record weakness against the dollar, the euro, the British pound, and the Swedish- and Danish krone, it is “probably a combination” of these factors that has bolstered the krone.
Now, 100 Swedish kroner cost less than NOK 100 instead of more; the exchange rate on Thursday morning was constant at NOK 97.
Despite the fact that it has been relatively expensive for Norwegians to travel abroad due to their currency’s weakness, Norway’s travel and tourism industry has enjoyed a record-breaking summer.
Americans, Europeans, and Asians, who have flocked to Norway in droves all year, now find Norway’s notoriously high prices to be less burdensome.
Numerous media outlets have reported that Norwegian tourists are receiving a “krone rebate” this year, easing the burden of hotel and restaurant expenditures.
“I’d say it’s ‘less expensive’ than it could have been,” a Pennsylvania father of five told DN after riding the gondola in Romsdal, “but it’s still expensive.”
In addition to oil and gas, other key Norwegian industries have benefited from the weak krone when their products are sold in dollars and euros.
This month, seafood exports broke yet another record, reporting sales equivalent to NOK 82 billion in the first half of this year due to high prices and an 8 billion-dollar currency effect.
In the meantime, Norwegian banks have been hauling in even more profits than before as a result of all the recent increases in interest rates.
To curb Norway’s greatest inflation rate in years (6.4% in June), many believe the central bank will need to raise rates further than the 4.25 percent indicated for August.
Economists and analysts continue to debate why Norway’s currency has been so feeble, given that its economy and oil and gas prices have remained surprisingly robust.
Some investors have blamed the Labour-Center government, which has increased taxes and political risk, for the decline in investment.
ystein Drum, chief economist for the national employers’ organization NHO, asserts that the government is not solely to blame for the feeble krone.
He notes that Norway is no longer as “different” from other nations as it once was, due to reduced oil prices and climate-related efforts to move away from oil.
Drum also observes that Norway now has lower interest rates than its trading partners (particularly the United States and the European Union).
This has made investments in the krone less attractive.Drum wrote in a recent commentary that the krone remains “a small, illiquid” currency that is less in demand during periods of uncertainty.
Others, such as currency strategist at Nordea Dane Cekov, contend that the krone was artificially robust for many years.
Now the globalization trend is reversing, crude prices may remain relatively low, and a strong krone made industry less competitive.
Few, however, believe that the Norwegian krone will revert to levels of NOK 7-8 per US dollar, which were typical for many years. Cekov and Kari Due-Andresen, the chief economist at Akershus Eiendom, believe that it may revert to NOK 9, but not significantly lower.
“The krone will likely be weaker than it was during the golden age of the Norwegian petroleum industry,” Due-Andresen told the Aftenposten newspaper.
With no significant “new oil” sectors on the horizon, despite political efforts to maintain the sector’s strength, it is inevitably doomed to decline.