Scandinavian Banks Spar Over Where the Norwegian Krone Is Headed

(Bloomberg) --

Some of Scandinavia’s bigger banks disagree with each other on the Norwegian krone’s short-term prospects.

The currency will face headwinds in the near term from seasonal factors such as dividend outflows and overcrowded long positioning, according to Nordea Bank Abp strategists Martin Enlund and Andreas Steno Larsen. They recommend “tactical” positioning for a krone slump of as much as 3 percent against its Swedish counterpart, the krona. Danske Bank A/S disagrees, and is sticking to its long-term positive outlook on Norway’s currency.

“Positioning is loaded long in krone, maybe in particular versus Sweden’s krona,” Enlund said. The stretched positions “could imply that we have a violent move lower in krone-krona on the cards, if one or more fundamental factors wrong-foot market participants in their long view” on the pair, he said.

Nordea strategists recommended this trade at the start of this week with an entry point of 1.0950 in the krone-krona exchange rate, betting on the pair slipping to 1.0650. The bank would exit the trade if the krone climbed to 1.1090. It was at around 1.0968 kronor Tuesday morning.

The Norwegian krone gained against the dollar and euro Tuesday as it was confirmed that China’s top trade negotiator will visit the U.S. this week, while the krona whipsawed following conflicting messages from the latest Riksbank meeting. The krone is about 7 percent higher this year versus its Swedish peer.

“If you believe the trade war will escalate then, yes, short krone-krona is right, but that is not my view,” said Kristoffer Kjaer Lomholt, a senior currency strategist at Danske Bank. “We still have our long recommendation on and lifted our stop-loss higher for the third time last week to 1.0825.”

Still, seasonal trends point to krone weakness around this time of the year, according to Nordea’s Enlund.

“Krone-krona has dropped more than 1.5 percent between mid-May and end-June on average over the past 10 years,” he said.

--With assistance from Charlotte Ryan.

To contact the reporter on this story: Anooja Debnath in London at adebnath@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Anil Varma, Scott Hamilton

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