Swedish krona likely to outperform Norwegian krone, BofA says

Bank of America anticipates minimal FX impact from upcoming central bank meetings, favoring the Swedish krona over the Norwegian krone in the near term, despite a constructive outlook for both Nordic currencies for the rest of the year. The bank believes both currencies, especially the Swedish krona, will benefit from European fiscal initiatives and a potential shift to domestic assets, supported by tighter monetary policies compared to the ECB and faster economic growth than the Euro area. Light market positioning, particularly in the Swedish krona, suggests room for appreciation as investor exposure increases.

Analysis

Bank of America projects limited foreign exchange volatility stemming from next week's central bank meetings, while expressing a near-term preference for the Swedish krona (SEK) over the Norwegian krone (NOK), despite maintaining a constructive outlook for both Nordic currencies through year-end. The bank identifies several tailwinds for these currencies, particularly the SEK, including beneficial impacts from European fiscal initiatives and a potential investor rotation into domestic assets. Further support is anticipated from the possibility of increased equity hedging by local asset managers, comparatively tighter monetary policies than the European Central Bank, and expectations of faster economic growth in the Nordic region versus the broader Euro area. Current market positioning is described as light for both currencies, with an especially sparse positioning in the SEK, suggesting significant upside potential should investors augment their exposure.

Key Decisions for Investors

• Consider tactical near-term positioning favoring the Swedish krona over the Norwegian krone, reflecting Bank of America's view of SEK's stronger immediate appreciation potential.
• Monitor upcoming Nordic central bank meetings for any deviations from the anticipated limited FX impact or relatively tighter monetary policy, as these could alter currency outlooks.
• Evaluate opportunities for increased exposure to Nordic currencies, especially the Swedish krona, given current light market positioning and positive fundamental drivers like European fiscal measures and superior growth.
• Track equity hedging activities by local Nordic asset managers, as increased hedging could provide further support for both SEK and NOK.