Norwegian Krone Remains Top G10 Carry Trade Pick, UBS Says

UBS Switzerland AG maintains that the Norwegian krone (NOK) provides the most compelling carry trade opportunity within the G10 currency space, citing a combination of a hawkish central bank and fundamental support from the energy sector.

Hawkish Policy and Energy Tailwinds

Analysts at the bank point to the Norges Bank's aggressive monetary policy as a key driver. In its September meeting, the central bank raised its benchmark interest rate by 25 basis points to 4.50% and signaled that further policy tightening may be necessary.

According to UBS strategists Clémence Dumoncel and Constantin Bolz, this supportive policy is complemented by Norway's status as a net energy exporter. They noted that elevated energy prices, driven by ongoing geopolitical tensions in the Middle East and rising seasonal demand in the Northern Hemisphere, provide an additional tailwind for the currency.

Forecast and Key Levels

UBS is holding its forecast for the euro to Norwegian krone (EUR/NOK) exchange rate steady. The bank projects the pair will trade at 10.70, 10.60, 10.50, and 10.50 at the end of each quarter through September 2027.

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This outlook is based on the expectation that both the Norges Bank and the European Central Bank will each implement one more interest rate hike, which would keep the interest rate differential between the two currencies stable. From a technical perspective, UBS identified support for EUR/NOK near 10.73 and key resistance around 11.30. The pair was trading at 10.8 on Tuesday.

Potential Risks to the Outlook

Despite the positive outlook, UBS highlighted several key downside risks that could challenge the krone's strength. These include:

• A significant decline in energy prices.
• A broad deterioration in global risk sentiment.
• A more hawkish-than-expected stance from the U.S. Federal Reserve, which could trigger a renewed rally in the U.S. dollar.