Forex Flash: NOK heads off list of underperformers in 2013 – UBS

One of the biggest underperformers of 2013 so far has been the Norwegian krone. According to Research Analyst Gareth Berry at UBS, “The EUR/NOK is trading at close to 7.50 and is now some distance away from our 1m forecast of 7.30. Perhaps even more surprisingly, the NOK/SEK has all but collapsed and a break below the 2012 low of 1.1200 looks within reach. Many clients have questioned whether this move is justified as there should be several aspects for NOK, which are quite supportive.”

Firstly, in a generally risk-on market commodity currencies should stand to benefit as global activity picks up. Given Norway's exposure to the (tentatively) improving Eurozone, the effects should even be stronger. Secondly, “although over-positioning has generally undermined the case for AAAs, against the euro aside, the krone should not be underperforming the likes of the SEK or even the AUD.” Berry adds.

The NOK is also barely up against the Canadian dollar so far this year – these three currencies were just as, if not more heavily bid over the last 18 months for reserve allocation purposes as they offered liquidity in addition to yield: the SNB conspicuously continues to avoid putting the NOK into its reserve portfolio. Finally, even though Norges Bank has begun to sound more cautious on the economy, the same can be said for many 'AAA' economies, all of which face significant private sector debt overhang and the prospect of a deep correction in housing markets.