Summary:
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Fourth quarter Norway’s GDP came in close to market expectations
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Interest rate market still supports a bullish scenario for the NOK
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Technical resistance could encourage NOK bulls to enter the market
Weaker GDP structure
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Open account Try demo Download mobile app Download mobile appToday’s data on Norwegian GDP showed quite upbeat numbers, however, they did not have a substantial impact on the NOK. The Norway’s economy expanded 0.5% QoQ in the last three months of 2018 and 0.9% QoQ as far as mainland economic growth is concerned. Nevertheless the details seem to be a bit less encouraging, matching the overall trend in other countries though.
The Norway’s economy continued expanding at a similar pace in the last quarter of 2018 compared to previous quarters. Source: Macrobond, XTB Research
In annual real terms the Norway’s economy grew 1.8% in the final three months of the past year while mainland growth totalled 2.5%. Looking into the structure of today’s data one might spot that household spending decelerated to 1.4% from 1.8% in the third quarter producing the weakest annual rate of growth in 2018. This was consistent with a 1% YoY decline in imports, the sole fall in the past year. At the same time exports grew barely 0.1% YoY. Albeit, the net exports contribution to annual growth was 0.4 percentage points, the best result since the third quarter of 2017. Note that the household expenditure contribution to growth was 0.7 percentage points, the weakest number since late 2016. This seems to be in line with the stumbling demand not only in Norway but in the world in general. Finally investment spending (GFCF) rose 2% YoY, down from 4% YoY in the prior quarter adding to annual growth 0.5 percentage points.
Rate differential favours krone
The 10Y yield spread points to lower levels of the USDNOK. Source: Bloomberg, XTB Research
Having looked at the interest rate market (10Y) one may arrive at a conclusion that the USDNOK seems to be trading at the demanding level not justified by the bond market. The 10Y yield spread and the pair diverged in December. Since then the currency pair has corrected to some extent but this week has brought a reversal once again. From this points of view one may be bullish when it comes to the longer-term outlook for the Norwegian krone. Keep in mind that the NOK is still among most undervalued G10 currencies as opposed to the greenback being placed on the other side.
Technical outlook
The technical backdrop of the USDNOK also seems to suggest that pair could be prone to a reversal before long. However, before things get better for the NOK, the pair could yet push a bit higher. Nonetheless the supply zone in the vicinity of 8.63 appears to be crucial level for the pair and one may expect that bulls could run into some obstacle around this area. If so, the pair could reverse back toward the lower bound of the bullish channel (the blue lines seen in the chart above). Source: xStation5
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