OSLO/STOCKHOLM (Reuters) - The Norwegian and Swedish currencies will remain stagnant against the euro in the near term and only partly reverse their recent weakness over the next year, a Reuters poll of foreign exchange strategists showed on Friday.
Battered by fears the export-heavy Nordic economies would suffer in a global slowdown, the Swedish crown is trading around 10-year lows against the euro while the Norwegian crown trades around 11-year lows.
They will both continue to do so for at least another three months, the poll showed, at a time when investors are braced for the impact of a possible no-deal Brexit and by the prospect of more uncertainty over trade.
“In the short term, there will be a seasonal effect from low market liquidity toward year-end,” DNB Markets economist Knut Magnussen said of the Swedish and Norwegian crowns.
“There could be some recovery in the new year, but the main outlook is that both countries will see a weak currency,” he added.
While the European Central Bank, the U.S. Federal Reserve and central banks across Asia-Pacific have cut interest rates, the two Nordic nations have been more hawkish, with Norway hiking four times in a year and Sweden also maintaining plans to tighten policy.
Historically, the mere prospect of a growing interest rate differential could have lifted the currencies, but at the moment the market is largely driven by unrest in global trade, said DNB’s Magnussen.
“We expect plenty of jitters ahead too, and no prospects for a speedy end to the trade war between the United States and China,” he added.
Carl Hammer, head of macro research at SEB, said the Swedish currency was under pressure from both home and abroad and was likely to weaken a bit more during the fourth quarter.
“The Riksbank and the negative interest rate are the single most important factors for us being at these weak levels. It has been a deliberate strategy for a long time to weaken the crown and bring up imported inflation,” Hammer said.
“But it is also logical that the crown weakens when the global economy slows.”
The Swedish central bank has had a negative interest rate since 2015 but did raise its benchmark rate to -0.25% earlier this year and has stuck to a forecast for a hike late this year or early next year.
However, with recent data being weak and dovish signals from the ECB and Fed, many say those plans will have to be scrapped.
“There are no expectations in the foreign exchange market that the Riksbank will deliver according to its plan,” Hammer said.
“If the Riksbank says in October it still intends to raise the rate, which would be very surprising, that would give some support to the crown,” he added. The next rate decision from the Riksbank is on Oct. 24.
In the coming 12 months, the Norwegian crown is expected to gain 4% on the euro, the Reuters poll predicted, while the Swedish currency is seen rising just under 3%.
The gain seen for the Norwegian crown is smaller than predicted by a similar poll in September, but the Swedish currency is now expected to do slightly better, rising to 10.55 in 12 months’ time against 10.57 predicted previously.
Polling by Sarmista Sen and Richa Rebello; Editing by Alison Williams