What To Look Out For When Trading The USD/NOK Pair

On the 2 January 2015, the USD/NOK currency pair started trading at 7.3890. By 29 October 2015 the dollar had appreciated to 8.5505, for a gain of 15.85% if you had gone long on the dollar at the start of the year. This is certainly an impressive appreciation over the course of 1 year, and dollar strength for the pair has been particularly notable since the nadir reached in May 2015. August, September and October proved to be exceptionally bullish months for the greenback, given a slew of strong economic data and collapsing commodities prices fueled by a weak Chinese economy. That Europe is in the throes of a €1.1 trillion monetary stimulus, with more to come should also be factored into the equation, even though Scandinavian countries like Norway are not a part of the Eurozone bloc.

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As with all other currencies, the Norwegian krone is influenced by interest rates, and commodity prices like crude oil. 2015 has been a particularly grueling year for crude oil, particularly since June where the wheels started to come off of ‘black gold’. The vast majority of trade conducted by Norway is with the European Union and the United Kingdom. Eurozone weakness naturally impacts on the strength of the Norwegian currency, and this has played a part in the 15.72% depreciation we have seen in the currency for the year to date.

Barely a couple of weeks ago, the Prime Minister of Norway, Erna Solberg made public comments about the difficulty of trading the Norwegian krone. Norway is a major oil producer – and one of the wealthiest countries in Europe. As the NOK currency weakens, so receipts for exports decline, thereby impacting on revenues, profitability and employment prospects. The currency has been highly unstable of late, as evidenced by the fall from over 0.15502 the USD to 0.12002 to the USD over the course of 1-year. If we evaluate the 1-year figures, the NOK has lost 20% against the USD. This places it firmly in the category of worst performing 10 major currencies against the USD. The massive volatility experienced by this currency is deeply concerning to those who are backing the Norwegian krone.