Forex Investment and Currency Trading

It has been a point of note that EUR/NOK has been impervious to the moves in oil prices for the past year, that is until September. Specifically, EUR/NOK did not respond to the rise in oil prices to $145/bbl and did not break out of its range to the upside until oil had fallen to around $100. This is at odds with the template laid out in 2005-2007 when EUR/NOK much more closely followed the move in oil prices – most notably demonstrated pre and post Hurricane Katrina. Instead $/NOK has been much more closely correlated with the oil price, [...]

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Rather improbably, global risk aversion has hurt the NOK due to its new found ‘status’ as a high yielder. A binary focus on yield ignores the currency’s obvious safe haven characteristics and won’t last.
Trading the NOK/oil correlation has also been popular. Again, the market’s view has been one dimensional as even a $30pb oil price decline would still leave NOK fundamentals rock solid.
Despite a poor start to 2008, the outlook for the NOK is positive. The last Monetary Policy Report is consistent with the policy rate rising further into summer. The Executive Board anticipates rates in the interval 5 – [...]

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The factors that have kept CAD/NOK range-bound are breaking down and bearish risks are increasing. As a result, CAD/NOK will continue to decline in the near term.
Short CAD/NOK is an oil neutral way to capture CAD-bearish economic stresses from the US slowdown that are weighing on the Canadian economy while the European economy, including Norway, displays ongoing resiliency.
CAD and NOK are oil sensitive currencies that strengthened as oil prices rose in recent years, leaving CAD/NOK largely rangebound. Now however, amid USD weakness, oil prices have rallied USD100/b, but CAD/NOK has broken toward multi-year lows as other factors are offsetting any [...]

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