DJ Forex Focus
Nordics Set For Catch-Up With Risk Bets. By Katie Martin
Nordic currencies have been slow to share in the rush to risky bets, but that could be set to change.
The Norwegian krone and Swedish krona are often bunched together with other currencies that tend to perform well in buoyant economic conditions, like sterling, and the Australian, New Zealand and Canadian dollars.
Each currency has its own characteristics, of course. But bluntly, when markets are optimistic about growth prospects and hunting for risk, each of them tends to perform well.
That is what's happening now.
The Norwegian krone has pushed nearly 4% higher against the euro since the current risk rally really kicked in at the end of July. The Swedish krona, buoyed in addition by easing problems in Latvia, where the country's banks are prominent lenders, has rallied by some 8% over the same period. It now trades at around SEK10.20 to the euro. The Norwegian krone trades at NOK8.6950.
But the Australian dollar has rallied right back up to the levels it held before the collapse of Lehman Brothers caused a scramble for safe havens. And while the Canadian dollar has climbed fast enough to provoke mild verbal intervention to try to bring it back down, many still see the rally in Nordic currencies as under-developed.
The Norwegian krone, for example, is yet to break to a new high for the year. And some of the Swedish krona's apparently spectacular rise is exaggerated by the dramatic falls it made earlier this year, when an imminent devaluation of the Latvian lat looked likely.
"The laggards of the recovery - especially the Norwegian krone and the Swedish krona - may have considerable upside from here," noted analysts at Barclays Capital in London.
Barclays isn't alone. In his weekly note, John Normand, senior analyst at JP Morgan also advised buying the two Nordic currencies against the euro, as "Scandinavian currencies are the catch-up recovery trade (among the major currencies)."
Part of the reason for Normand's enthusiasm is his view that, against most other currencies, the dollar has already tumbled about as far as it can for now. It is falling against 90% of the major currencies, Normand said - an extreme level that suggests the move may be running out of steam.
As Barclays Capital also pointed out, speculators have piled into the Australian and Canadian dollars of late, making them the most popular positive bets in the market.
Time for a shift of focus to new currencies, and the Nordics could well step into the gap.
Economic output data at the end of last month showed that the Swedish economy held steady in the second quarter of this year, surprising economists who had expected to see merely a slowing pace of decline.
That figure helped to push the krona up to its highest level for the year against the euro, and it has kept climbing from there.
Norway, meanwhile, could turn out to be the first major economy to start raising interest rates. This won't happen immediately. No one expects rates to climb from 1.25% at the Norges Bank meeting this week, for example.
But a doubling in interest rates over the next 12 months is already priced into the fixed income markets. Even despite weaker-than-expected inflation data Monday, traders and investors are already scouring central bank communication for signs that rates are set to rise.
"Look out for tonal nuances in the central bank's missives, and in the Norges Bank's press conference," said Christian Lawrence, a strategist at RBC Capital Markets in London.
Overnight, the major currency pairs kept to tight ranges, although the dollar slipped a little after two days of solid gains triggered by Friday's better-than-expected unemployment data.
Around 0630 GMT, the euro was worth $1.4153, up marginally from $1.4145 seen in late New York trade Monday. The pound fetched $1.6492, up from $1.6480 and the dollar was worth Y96.87, down from Y97.10 seen late Monday.
The Norwegian krone and Swedish krona are often bunched together with other currencies that tend to perform well in buoyant economic conditions, like sterling, and the Australian, New Zealand and Canadian dollars.
Each currency has its own characteristics, of course. But bluntly, when markets are optimistic about growth prospects and hunting for risk, each of them tends to perform well.
That is what's happening now.
The Norwegian krone has pushed nearly 4% higher against the euro since the current risk rally really kicked in at the end of July. The Swedish krona, buoyed in addition by easing problems in Latvia, where the country's banks are prominent lenders, has rallied by some 8% over the same period. It now trades at around SEK10.20 to the euro. The Norwegian krone trades at NOK8.6950.
But the Australian dollar has rallied right back up to the levels it held before the collapse of Lehman Brothers caused a scramble for safe havens. And while the Canadian dollar has climbed fast enough to provoke mild verbal intervention to try to bring it back down, many still see the rally in Nordic currencies as under-developed.
The Norwegian krone, for example, is yet to break to a new high for the year. And some of the Swedish krona's apparently spectacular rise is exaggerated by the dramatic falls it made earlier this year, when an imminent devaluation of the Latvian lat looked likely.
"The laggards of the recovery - especially the Norwegian krone and the Swedish krona - may have considerable upside from here," noted analysts at Barclays Capital in London.
Barclays isn't alone. In his weekly note, John Normand, senior analyst at JP Morgan also advised buying the two Nordic currencies against the euro, as "Scandinavian currencies are the catch-up recovery trade (among the major currencies)."
Part of the reason for Normand's enthusiasm is his view that, against most other currencies, the dollar has already tumbled about as far as it can for now. It is falling against 90% of the major currencies, Normand said - an extreme level that suggests the move may be running out of steam.
As Barclays Capital also pointed out, speculators have piled into the Australian and Canadian dollars of late, making them the most popular positive bets in the market.
Time for a shift of focus to new currencies, and the Nordics could well step into the gap.
Economic output data at the end of last month showed that the Swedish economy held steady in the second quarter of this year, surprising economists who had expected to see merely a slowing pace of decline.
That figure helped to push the krona up to its highest level for the year against the euro, and it has kept climbing from there.
Norway, meanwhile, could turn out to be the first major economy to start raising interest rates. This won't happen immediately. No one expects rates to climb from 1.25% at the Norges Bank meeting this week, for example.
But a doubling in interest rates over the next 12 months is already priced into the fixed income markets. Even despite weaker-than-expected inflation data Monday, traders and investors are already scouring central bank communication for signs that rates are set to rise.
"Look out for tonal nuances in the central bank's missives, and in the Norges Bank's press conference," said Christian Lawrence, a strategist at RBC Capital Markets in London.
Overnight, the major currency pairs kept to tight ranges, although the dollar slipped a little after two days of solid gains triggered by Friday's better-than-expected unemployment data.
Around 0630 GMT, the euro was worth $1.4153, up marginally from $1.4145 seen in late New York trade Monday. The pound fetched $1.6492, up from $1.6480 and the dollar was worth Y96.87, down from Y97.10 seen late Monday.
11 August | 
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