Commerzbank Sees NOK’s Oil Windfall Fading After War Ends

Key Moments

Oil and War Dynamics Drive NOK’s Outperformance

Michael Pfister at Commerzbank observes that the Norwegian Krone (NOK) has recently outpaced the Swedish Krona (SEK), a move he attributes primarily to Norway’s position as a major energy exporter during the war-induced commodity price surge. This NOK strength has emerged even though interest rate expectations for Norway and Sweden remain broadly aligned.

According to Pfister, the recent NOK rally has been shaped far more by the energy shock than by a divergence in monetary policy paths. Norway’s export profile has allowed NOK to benefit from elevated energy prices, while Sweden’s status as a significant energy importer has left SEK comparatively disadvantaged.

Commerzbank’s Assessment of NOK vs SEK

Pfister notes that NOK’s recent performance relative to SEK is stronger than originally expected in Commerzbank’s earlier analysis, which had projected NOK would gain ground later in the year. The current price action, he argues, is “almost entirely due to the energy price shock,” given Norway’s role as one of the world’s largest energy exporters and Sweden’s need to import a meaningful share of its energy demand.

He underscores that, “In terms of interest rate expectations, there is hardly any difference between the two currencies, even though one might expect the Norwegian real economy to outperform its Swedish counterpart should the energy price shock persist.”

Outlook After the War and EUR/NOK Projections

Looking ahead, Commerzbank expects the NOK’s energy-driven advantage to diminish once the war concludes. Pfister states that, “Once the war ends, which we currently expect by the end of May, this energy price-driven performance should reverse somewhat.” In response to these developments, the bank adjusted its NOK forecasts last week.

Despite the recent NOK gains, Commerzbank still anticipates “slightly higher EUR/NOK levels by the end of the second quarter, followed by only a slight appreciation.” In Pfister’s view, much of the NOK appreciation that had been anticipated earlier has already been realized in current market pricing.

Norwegian Inflation, Rate Risk, and Persistent Risk Premia

Pfister emphasizes that Norway’s inflation backdrop is an important constraint on further NOK outperformance. He notes that, “Norwegian inflation was already significantly too high before the war in Ukraine, so Norges Bank actually needs to raise interest rates more than the Riksbank does.”

However, he points out that market-based expectations have only adjusted to a similar degree for both central banks. This alignment leads Commerzbank to question how quickly risk premia related to Norwegian monetary policy might be reduced. As he concludes, “The fact that market expectations have nevertheless only adjusted to a similar extent makes us doubt that the risk premium for Norwegian monetary policy will be priced out anytime soon.”

Summary of Commerzbank’s NOK View