Summary:
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Norway’s inflation holds steady in December remaining well above the Norges Bank’s objective
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Another rate hikes in Norway may be delivered in March
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USDNOK hits the strong demand zone, a corrective move to the upside possible before the pair resumes its downtrend
Another rate hike in sight
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Open account Try demo Download mobile app Download mobile appNorwegian headline inflation held unchanged at 3.5% in December hence it remained far above the central bank’s target. The reading also beat the median estimate suggesting a print of 3.4% in annual terms. The fact that core inflation eased slightly to 2.1% from 2.2% registered in November should not be treated as a dovish sign as the value proved to be above expectations.
Price growth in Norway remains above the Norges Bank’s goal suggesting that central bank could deliver another rate hike in March. Source: Macrobond, XTB Research
In monthly terms price growth was flat, both headline and underlying inflation, after a firm rise seen in November. The details showed that lower transportation costs fell 0.4% MoM producing the lowest value since August mainly on the back of lower crude prices. Prices of food and drinks also fell by 2.3% MoM after rising 1.4% MoM in the previous month. In turn, core prices were weighed down by clothing and footwear prices that decreased 0.5%, the most since July, mirroring a Christmas effect. The largest increase was seen in household costs, however, it came after a 0.8% MoM dip in November. Overall, domestic price pressures in the Scandinavian economy remain firm supporting our forecast regarding another rate hike in March after the first hike in more than seven years delivered in December. Moving to the NOK exchange rate one needs to notice that the 10Y yield differential has shrunk to 0.95% from 1.2% since the beginning of December which has yet to be fully reflected in the USDNOK. Therefore we still see scope for further NOK appreciation. This view is supported by the bullish price developments in Norway as well as the dovish rhetoric the Federal Reserve has struck of late. Nevertheless, in the near-term we do not rule out a possible pullback before the pair resumes its downtrend.
Technical view
The daily chart of the USDNOK illustrates that the price has seen quite a notable decline in recent days fuelled by the weaker greenback and rebounding oil prices. We think that the demand zone nearby 8.45 could incentivize some NOK bulls to cash in on their long positions thereby creating some downward pressure. Having said that, we see this pullback to be capped to 8.60/8.65 and then a downtrend toward the lower bound of the channel could be resumed. Looking forward, we see the pair leaving the bullish channel and heading toward 8.00. Source: xStation5
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