The USD/NOK exchange rate retreated for the second day straight ahead of the Norges Bank central bank decision and US nonfarm payrolls (NFP) data. It retreated to a low of 10.9, lower than this week’s high of 11.13.
Norges Bank and NFP dataThe Norges Bank will conclude its monetary policy meeting on Friday. This will provide more information on when the bank will start to cut interest rates. Most economists expect the bank to start slashing rates in its September meeting.
Norges Bank has kept interest rates steady at 4.50% in the past three meetings. Before that, it moved them from almost zero in 2021 in its attempts to fight inflation.
Recent data shows that the bank is prevailing in this fight. The headline Consumer Price Index (CPI) dropped to 3.9% in March from 4.5% in February. The drop was steeper than the median estimate of 4.2%. It peaked at 7.5% in 2022.
In a recent note, analysts at JPMorgan warned that the Norges Bank will still maintain a hawkish view because inflation remains high. Also, a dovish tone will likely lead to more krone weakness since it has dropped by almost 10% from its highest point this year. The statement added:
“The recent data flow leans on the hawkish side, with resilient economic activity, wage negotiations, and krone weakness likely offsetting the downside inflation surprise.”
The Norges Bank decision will come two days after the Federal Reserve left interest rates unchanged between 5.25% and 5.50%. In his statement, Jerome Powell noted that the bank would be patient and data-dependent when deciding when to cut rates.
Analysts believe the first interest rate cut will happen in December because of the upcoming election. The bank may be accused of political interference if it cuts or hikes interest rates before November’s election.
Looking ahead, in addition to the Norges Bank decision, the bank will react to the upcoming US nonfarm payrolls data. Economists expect the numbers to come in at 268k and the jobless rate steady at 3.8%.
USD/NOK technical analysis
The USD/NOK exchange rate has pulled back in the past two days as the US dollar index retreated. It fell from 11.1380 on Thursday to 10.98 on Friday. It has also crashed below the crucial support level at 11.00, its highest swing in December.
The pair has remained above the 50-day moving average and has formed a small double-top pattern. Also, the Relative Strength Index (RSI) has retreated from 70 to 55. Therefore, the pair will likely retreat and then rebound after the NFP data. If this happens, it will retest this week’s high of 11.1380 soon.
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