By Terje Solsvik and Colm Fulton
OSLO/STOCKHOLM (Reuters) – The Swedish and Norwegian currencies are expected to gradually recover from recent weakness against the euro and dollar in the next 12 months following a turbulent start this year, a Reuters poll of foreign exchange strategists showed on Friday.
Both countries are experiencing unprecedented drops in business activity amid global shutdowns to combat the coronavirus pandemic, and Norway has taken a double hit as the price of oil, its biggest export, has crashed.
The Norwegian crown tumbled to all-time lows in mid-March before staging a partial comeback when the central bank threatened to intervene in the currency market for the first time in more than two decades.
The Swedish crown similarly hit 11-year lows against the euro and its weakest level in 18 years against the dollar in recent weeks, although it too has recovered some lost ground along with a partial rebound in stock markets.
By this time next year, the Swedish crown is predicted to rise to a level of 10.6250 to the euro from 10.9506 currently, the median forecast showed, albeit with forecasts ranging from 10.10 to 11.40 per euro.
Nordea Markets, which predicted some short-term weakness for the Swedish crown, said the longer term prospects were brighter.
“Looking to the second half of this year, if things will have improved and we are past the coronavirus, in such an environment, the Swedish crown should gain some strength,” Nordea Chief Analyst Niels Christensen said.
With public debt at 43-year lows, the government launched a raft of measures, including subsidies for shorter working hours, tax rebates and loan guarantees, while the central bank has poured money into the financial system.
The Norwegian crown is meanwhile seen trading at 10.60 to the euro one year from now, up from 11.26 currently and a 20% rise from the all-time low of 13.1678 set March 19.
The price of North Sea , although still down 60% year-to-date, has risen in recent days amid signs a price war between Russia and Saudi Arabia could come to an end.
“Less downside risk to the oil price is likely a key driver of the crown’s strength,” Nordea Markets said of the Norwegian currency.
While Norges Bank has declined to comment on any level it might seek to establish for the Norwegian crown, the most recent movement in the currency was likely also driven by central bank intervention, Morgan Stanley (NYSE:) said in a note to clients.
Norway has launched business loans, tax deferment and fiscal spending worth at least 360 billion Norwegian crowns ($35 billion) to aid the economy, and the central bank slashed its benchmark interest rate to record lows.
Ultimately, the duration of coronavirus lockdowns and their impact on the global economy could be key also to the Nordic currencies.
“We can easily get a new wave of market unrest and if so, smaller currencies will suffer,” Nordea’s Christensen said.