Wednesday January 20, 2021 - 10:28:05 GMT
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Norwegain krone might be the new hero of the new year
The global pandemic has set its own standards and its own rules in the global market. Those changes have especially painfully reflected in the global economy and businesses. There is almost no country left without the massive footprint of the pandemic.
Because of the highly contagious nature of the COVID-19 virus, the majority of the venues and gathering spots have been closed. The tourism industry has been paused and social distancing has become the new trend. So far, the vaccine seems to be the only salvation. Though up until the vaccination becomes a part of the day, the uncertainty is the biggest struggle.
Countries all over the world have been struggling with the pandemic and economic crisis. Everyone is trying to survive on their own, with the least loss. While the majority of businesses have been closed permanently or temporarily, the governments had an obligation to come up with a better plan and assist employers as well as employees to tackle the circumstances.
It very much looks like the survival of the fittest, and so it is. The fitter the countries are, the more is a chance to survive the pandemic and still stay strong, of course relatively to others. Consequently, those countries which even previously had a rigid and stable economy are now doing better than the others. Norway can be one of the best examples.
From nothing to something
While the global pandemic touched everyone almost equally, Norway still managed to maintain stability. The Norwegian krone has experienced major ups and downs towards the USD during the past year. Though, analysts predict a better future for the currency within this year.
As the Norges Bank’s hawkish turn may boost the currency after one of the year’s worst performances. The predictions are made by HSBC Holdings Plc and Danske Bank. The central bank has also said that the interest rates may rise from the first half of 2022, in sharp contrast with the Federal Reserve and other authorities as well. Thus, the next year could be the grand raise for the Norwegian krone.
Dominic Bunning, who is the senior foreign0exchange strategist at HSBC said that the sign of more hawkish monetary policy divergence should be jumped upon by foreign exchange-markets looking for normalization. Though, despite the downfall of the market, the Norwegian economy is still progressing due to several factors.
Norway is known to be one of the strictest countries when it comes to both traditional and online gambling. This is determined by the lack of tolerance for the gambling expenditure. Though, during the pandemic and right when the country needed at least somewhat entertainment source and people needed to work remotely, the country softened some of the regulations.
Many industries experienced stagnations, then when online gambling was relatively released from the collar. Some regulations were softened allowing players to choose among the variety of existing online casinos. Moreover, here you can have a look at the online gambling regulations and how you can gamble in Norway without breaching any laws. The fact is especially interesting, as many analysts and industry representatives believe that online gambling has contributed a lot in maintaining relative stability in the industry.
Adding more hopes to the current state, the revival of the reflection trade as vaccines start to roll out and a potential bounce back in the demand of oil, already sound quite promising. This could help a trade-weighted krone index escape a bearish trend that has been in place since the very 2013.
The Norges Bank’s recent announcement means that investors can add relative short-end rated spreads as a supportive factor. This has been told by the chief analyst at Danske Bank, Kjaer Lomholt.
The currency will advance about 4% to 8.32 per dollar by the end of next year, according to the median forecast by analysts in a Bloomberg survey.
Another factor contributing to the stability of the economy is the fact that Norway has relatively fewer footprints from the pandemic rather than any other country. According to the surveys, Norway contracted 3.5% last year, which is less than many other developed European countries. Though, this rate is expected to grow by 3.4% in 2021 and 2.6% in 2022. Those ratings give us better hope for a great economic comeback somewhere in the nearest future.
Oil and gas remain to be the most important and crucial parts of the Norwegian economy. They both make up over 50% of Norway's exports, so a recovery in crude will go a long way in boosting the krone. Despite the drastic decline, the oil process is expected to sustain the recovery from the rout last year and stay steady for 2021. The forecasts approve the theory. The changes in the oil price will definitely support krone and especially its correlation with Brent bounces from the lower end of the last year's range and back towards the high of 0.80 seen in the March of 2020.
The bottom line
The global economy has suffered a lot, and so has the economy of Norway. Though, one way or another with the vaccine and the digital integration, the world soon has to go back to the lane. The options that payout should the currency weaken versus the dollar over this year trade at a significantly wider premium than recent averages. This leaves the space for repricing that could actually benefit the Norwegian krone.
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