UBS strategists Clémence Dumoncel and Constantin Bolz have maintained their positive outlook on the Norwegian krone (NOK) carry trade. They highlight the currency's attractive carry profile, supported by a hawkish Norges Bank and Norway's status as a net energy exporter.
Norges Bank raised its policy rate by 25 basis points at its September meeting, bringing it to 4.50%. UBS kept its EUR/NOK forecasts at 10.70, 10.60, 10.50, and 10.50 for each quarter-end through September 2027. The pair traded at 10.8 on Tuesday, with technical support identified around 10.73 and key resistance levels near 11.30.
The positive outlook is driven by high energy prices, further supported by ongoing geopolitical tensions in the Middle East and increasing seasonal demand as the Northern Hemisphere enters winter. UBS expects both Norges Bank and the European Central Bank to hike rates one more time, keeping the rate differential level between the two currencies.
However, UBS outlines several risks to the outlook, including a sharp decline in energy prices, deterioration in global risk sentiment, and a more hawkish Federal Reserve leading to renewed dollar strength.
