As the eurozone threatens to implode, investors see Norway as a safe haven: the Norwegian krone is close to a nine-year high against the single currency.
It offers a “potent combination of independence, responsible governance, oil wealth and income yield”, says Martin Spring in his On Target newsletter. The benchmark interest rate of 1.5% is among the highest in the industrialised world. The fundamentals are rock solid, with public debt very low and a large budget surplus, fuelled by oil and gas exports.
Its banks are in good shape because regulators were wary of letting them off the leash after a banking crisis in the early 1990s, says Qfinance.com. Low unemployment is underpinning consumption in the domestic economy. Growth is set to reach 3% this year.
But most of the krone’s gains look to be over. The central bank is rattled by the crisis in Europe, which takes 70% of Norwegian exports. Meanwhile, concern over a bubble in the Norwegian housing market may also imply lower interest rates, reducing the yield on Norwegian assets.
Moreover, the krone is still a petro-currency and oil is on the slide. “The correlation between movements in the oil price and the krone exchange rate is too firm to ignore,” says Investors Chronicle. As FXStreet.com warns, luck may be running out for the krone.