Is Norwegian Krone set to Become the Next Swissy?
The decision by the Swiss National Bank to set a floor on the EUR/CHF sent shockwaves across the currency markets. A new safe heaven emerged among the turmoil, the Norwegian Krone (NOK). The NOK reached an eight year high against the Euro as markets found a new place to move capital in times of distress.
The EURNOK dropped to 7.5900 as the NOK continued to attract capital. Analysts think that the NOK will benefit the most by the SNB move as it combines a sound fundamental economy combined with an interest rate of 2.25%.
However, some analysts say the NOK is not a good safe heaven because of its low liquidity. According to the Bank of International Settlements report, the NOK represents only 1.3% of the $4 trillion currency market in volume. The Swiss Franc accounted for 6.4% of the total volume in comparison. The lack of liquidity will discourage big institutional investors to move capital to the Krone.
In an age of global connectivity, countries are not immune from fiscal problems in neighboring regions. The Norwegian central bank has warned in the recent past that that rise of the Krone will affect the bank’s inflation target. Unlike other central banks that have held interest rates close to zero, the Norwegian Central bank can actually respond to a strong Krone by taking interest rate down from the current level of 2.25%.