Story
Norwegian Krone Remains Top G10 Carry Trade Pick for UBS
Summary
Strategists at UBS highlight the Norwegian krone's appeal for carry trades, citing a hawkish Norges Bank and Norway's position as a key energy exporter amid rising prices.
The Norwegian krone offers the most attractive carry trade profile among G10 currencies, a view maintained by strategists at UBS who point to a hawkish central bank and supportive energy market dynamics.
Hawkish Policy and Energy Tailwinds
The positive outlook from UBS is anchored by two key factors: the monetary policy of Norges Bank and Norway’s status as a net energy exporter. At its September meeting, Norges Bank raised its policy rate by 25 basis points to 4.50% and signaled that further tightening may be necessary to curb inflation.
According to UBS strategists Clémence Dumoncel and Constantin Bolz, this monetary stance is complemented by high energy prices. They noted that ongoing geopolitical tensions in the Middle East and increasing seasonal demand ahead of the Northern Hemisphere's winter are providing a tailwind for the krone.
Currency Forecasts and Key Levels
Reflecting this view, the Swiss bank maintained its EUR/NOK forecasts at 10.70, 10.60, 10.50, and 10.50 for the four quarter-ends through September 2027. The bank expects both Norges Bank and the European Central Bank to hike rates one more time, which would preserve the interest rate differential that underpins the carry trade.
AdFrom a technical perspective, UBS identified support for the EUR/NOK pair around 10.73, with key resistance near 11.30. The pair was trading at 10.8 on Tuesday, according to the source.
Potential Risks to the Outlook
Despite the constructive forecast, UBS outlined several risks that could challenge its position. The main risks to the krone's strength include:
- A sharp decline in energy prices, which would negatively impact Norway's export-driven economy.
- A significant deterioration in global risk sentiment, which could prompt a flight to traditional safe-haven currencies.
- A more hawkish U.S. Federal Reserve, which could lead to renewed strength in the U.S. dollar across the board.
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