Scandinavia's top currencies will remain strong this year on healthy economic fundamentals, resilience to Europe's struggles and expectation that central banks will begin hiking rates before others, a Reuters poll found. Both the Norwegian and Swedish crown stand to benefit from safe-haven flows as their AAA-rated economies weathered the worst of Europe's downturn with relative ease and 2013 kicked off on a high note, a quarterly poll of analysts showed.
Norway has long been a favourite due to its lucrative oil sector but Sweden could grab the spotlight this year after recent data showed that the Nordics' biggest economy is doing much better than thought. The Swedish crown has gained over 4 percent against the euro in just the past six weeks and much better-than-expected growth data last week only fuelled its bull run.
"The market has started to pick up on a combination of factors, like its strong fundamentals with AAA rating and low debt so Sweden is being repriced right now as a destination for reserve money," Carl Hammer, a currency strategist at SEB said. "The central bank is only supporting this by having a very relaxed attitude about the crown's strength, it's the most relaxed among any G10 countries," he added. The Riksbank already said there was only a slim chance it would cut rates this year after 3 reductions in 2011 and markets have begun to price in a hike for next year, providing support for the currency.
Still, analysts polled this week said the crown had little room to firm for now, given its rally, but there was an upside risk to forecasts as its economy wildly outperformed expectations last quarter, raising the chance of an investor rush. The Swedish crown, trading around 8.32 against the euro currently after its big gains, is seen holding at that level 12 months from now, the poll showed.
"The Riksbank's outlook is being repriced and the bank is probably pondering a rate hike earlier," Martin Enlund, a Handelsbanken foreign exchange strategist, said. "The crown would benefit from Europe's recovery but an escalation of the debt crisis would also propel (it)," he said. Norway on the other hand is in a completely different league with a huge budget surplus, steady oil revenues and generally enviable economic readings, like 3.5 percent economic growth last year.