The Norges Bank is a relatively recent adopter of inflation targeting. Prior to 2001, it had a very long history of targeting the exchange rate under various systems, the most recent of which was a managed float of the NOK vs its main trading partners., Rabobank’s FX strategist Jane Foley notes.

EUR/NOK pull back to the 11.60 area is possible

“The NOK has remained soft through the summer and the CPI inflation rate remains above target. Ahead of this week’s meeting, the Bloomberg economists’ survey shows a unanimous expectation of steady policy. This would make the Norges Bank one of the most hawkish central banks in the G10.”

“In view of the Norges Bank’s sensitivity to the exchange rate, we assume that Wolden Bache will use guarded language at this week’s policy meeting to avoid triggering another sell off in the exchange rate.”

That said, poor liquidity, Norway’s strong relationship with the oil sector and therefore the complex implications of the energy transition indicate that the outlook for the NOK is far from straight forward. Even so, we expect the NOK to draw some support from the Norges Bank’s relative hawkish position and pull back to the EUR/NOK 11.60 area on a 3-month view.”