Surprising foreign exchange analysts, policymakers from the Norges Bank unexpectedly cut interest rates by 25 basis points – to 1.50%.  The move comes amid concern that the country’s real estate market may be heating up – as well as a massive influx of global investors using the nation’s Krone as a safe haven currency.  This is especially true against the Euro – where the Krone has appreciated by 7.5% since the beginning of last year.

However, following the announcement, the Norwegian currency corrected by 1.7%.  But, any selling momentum that has manifested in the market is unlikely to be sustained – especially when you take a look at why investors started its love affair with the Krone.

1.  Gains in the Norwegian Krone have been boosted by the fact that the wider country remains a top global producer of crude oil.  According to international standings, Norway ranks as 15th among producers – contributing 2.14 million barrels a day or almost 2.5% of overall market share.  With global demand for crude still strong, there will always be demand for the Krone.

2.  Against the Euro, the safe haven status of the Krone will continue to remain.  This is especially true given the optimistic fundamental outlook for the country.  Compared to the European Union, the Norwegian economy is expected to expand at 1.5% or more than double the pace of the EU.  The positive expansion is expected to continue domestic growth – currently being built on a jobless rate of less than 4%.

3.  Even with the recent cut, Norwegian interest rates still offer more when compared to the EU – which currently stands at 1%.  Making matters worse for the Union are expectations that ECB President Mario Draghi may very well have to consider further cuts to benchmark interest rates – in order to spark any recovery in the region.

So, even though long holders of Krone may be suffering now, the prospects continue to remain good when it comes to the Krone.  Technically speaking, the currency may be set for a correction back to 7.7000 – which may spark further long initiation in the medium term.

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