Nordic crowns to stay strong

22 Oct, 2012

A weakening Swedish economy in the second half of the year will cap the crown's rapid gains, though the currency and its Norwegian peer will remain a relative safe haven for investors wary of the euro, a Reuters poll showed recently.
Both Sweden and Norway have posted strong growth this year, in contrast to countries in the euro zone, and their outperformance has held up interest rates and pushed their currencies to multi-year highs against the euro.
But their paths are expected to diverge somewhat over the next 12 months with Sweden slowing and its crown weakening, while oil-rich Norway continues to sail serenely on, supporting its currency.
Norway's central bank kept its key interest rate unchanged at 1.5 percent in late August and is expected to tighten policy in the first half of next year.
Sweden's central bank, on the other hand is widely expected to cut rates this year - possibly as soon as Thursday.
Like fellow safe haven Switzerland, Sweden's economy is showing the first signs of weakness, with PMI figures last week showing activity in the country's manufacturing sector at a three-year low in August.
The crown dropped sharply after the PMI data and was trading at around 8.45 to the euro on Wednesday, off a 12-year high hit in August around 8.18.
"There are some concerns regarding growth in the second half of the year and the PMI figures underline that uncertainty," said Torbjorn Isaksson, economist at Nordea. The slide in the crown, however, is unlikely to be severe.
Sweden, home to manufacturing giants like truck maker Volvo and bearing firm SKF, is expected to remain stronger than most economies in the euro zone. Sweden's rock-solid, triple-A credit status will also continue to attract investors looking for a safe haven, limiting the effect of rate cuts on the currency.

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