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UBS Adds Norwegian Krone to Top FX Picks, Sees Oil Rally as Capped
UBS has added the Norwegian krone to its list of top foreign exchange picks, citing a belief that the recent oil price surge will be limited and unlikely to force major central banks into further interest rate hikes.
The bank's analysts stated that while currency markets remain sensitive to geopolitical developments in the Middle East, they expect global oil market adjustments to prevent a sustained price spike.
Capped Oil Prices to Limit Rate Hikes
According to UBS, swings in oil prices linked to the Iran conflict have been a primary driver of inflation expectations and currency movements. However, the bank forecasts that the conflict will alternate between periods of escalation and de-escalation, making it unlikely for Brent crude to remain above $100 a barrel in the near term.
This outlook suggests that most G10 central banks will be able to keep monetary policy unchanged rather than resume a tightening cycle. Such a stable rate environment is seen as supportive for risk assets and pro-growth currencies.
G10 and Emerging Market Strategy
Against this backdrop, UBS continues to favor selective exposure to currencies offering attractive yields and ties to economic growth. The bank's top picks now include:
Ad- Norwegian krone (NOK) - Newly added
- Swedish krona (SEK)
- New Zealand dollar (NZD)
- Australian dollar (AUD)
- British pound (GBP)
- Chinese yuan (CNY)
UBS maintained a neutral stance on the euro, forecasting the EUR/USD exchange rate to trade within a 1.14-1.20 range. The bank expects the Swiss franc (CHF) to underperform, as it remains a preferred funding currency for carry trades.
In emerging markets, UBS noted that interest-rate carry should remain the main driver of returns. The bank favors diversified exposure to high-yielding currencies such as the South African rand (ZAR), Brazilian real (BRL), Mexican peso (MXN), and Indian rupee (INR), while taking a more cautious view on the Turkish lira (TRY).
Geopolitical Risks Remain
UBS cautioned that its foreign exchange outlook remains highly dependent on the evolution of the Middle East conflict. A significant escalation that disrupts energy supplies could trigger a broader risk-off sentiment in markets.
Such a scenario would likely strengthen the U.S. dollar due to safe-haven demand and put downward pressure on the higher-yielding currencies currently favored by the bank.
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