Nordic Currencies: Norway’s Krone Advances as Oil Prices Climb

By Bo Nielsen

Dec. 10 (Bloomberg) -- Norway’s krone advanced against the euro as the price of oil increased, making the assets of the world’s fifth-biggest exporter of the commodity more attractive.

The krone also strengthened versus the dollar as a report showed Norway’s inflation rate fell more than expected in November, making it easier for the central bank to cut rates next week to stimulate the ailing economy. The Swedish krona rose as stock-market gains spurred demand for higher-yielding currencies.

“The krone is trading as an exotic currency, rising and falling with the appetite for risk,” said Bjoern-Erik Orskaug, an economist at DnB NOR ASA in Oslo, Norway’s biggest lender.

Norway’s krone strengthened 0.4 percent to 9.1199 per euro by 1 p.m. in Oslo, and appreciated 0.3 percent to 7.0647 versus the dollar.

Crude climbed as much as 6.3 percent to $44.72 a barrel. The krone has fallen 13 percent against the euro and 23 percent versus the dollar this year as the price of oil tumbled 70 percent from a record $147.27 on July 11. Norway’s oil output fell 0.5 percent in November, the Norwegian Petroleum Directorate said today.

The krone pared gains versus the euro as a report showed underlying inflation, which excludes energy costs and taxes, slowed to 2.7 percent, from 3.3 percent in October, Oslo-based Statistics Norway said on its Web site today. The median estimate of 10 economists surveyed by Bloomberg was for a rate of 3.2 percent.

Consumer-price growth slipped to a five-month low as demand for oil and other commodities wanes in line with a faltering global economy.

‘Bearish on Krone’

The Norges Bank is scheduled to decide on interest rates on Dec. 17 in Oslo. Policy makers will cut the key deposit rate to 2.5 percent next year from 4.75 percent now, said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s biggest foreign-exchange trader

“There’s a lot of pressure on the central bank to cut rates,” Gullberg said. “I’m slightly bearish on the krone in the short term.”

Sweden’s currency strengthened 0.1 percent to 10.5745 per euro, after slipping to a record low of 10.7975 on Dec. 5. It was at 8.1710 per dollar, from 8.1903 yesterday.

Stock markets in Asia, and some in Europe, gained today on speculation U.S. lawmakers will approve a $15 billion bailout to keep automakers afloat. S&P 500 futures expiring in December added 1.3 percent.

The krona has fallen 11 percent against the euro and 21 percent versus the dollar this year as the biggest economy in Scandinavia cooled. The Riksbank on Dec. 4 cut its benchmark rate 1.75 percentage point to 2 percent, the most in 16 years.

‘Risk Aversion’

Sweden’s krona declined yesterday against the euro after inflation slowed more than expected in November, giving the Riksbank more reason to cut interest rates.

“Aggressive policy making and interest-rate convergence will limit losses on the krona in coming quarters, but the currency is exposed to new rounds of risk aversion,” wrote Geoffrey Yu, a currency strategist in London at UBS AG, in a note to clients today.

Sweden’s economy will contract 0.4 percent next year, adjusted for calendar days, the Riksbank said after last week’s decision. Inflation will slow to an average 1.2 percent in 2009 from 3.5 percent this year, and said rates probably won’t fall any further.

Nordic government bonds rose. The yield on Norway’s 6 percent government security maturing May 2011 fell three basis points to 3.24 percent. The yield on Sweden’s 5.25 percent note due March 2011 dropped six basis points to 2.06 percent. Yields move inversely to bond prices.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net