OSLO (Reuters) - The Norwegian and Swedish currencies will strengthen against the euro and dollar in the next 12 months after a weak start to 2017, a Reuters poll predicted on Thursday.
A similar survey conducted in January also concluded the two Nordic currencies would rise, but a sluggish outlook for inflation, and still-dovish central banks, have so far held them back.
In oil-producing Norway, where below-forecast inflation was complemented by weaker crude prices in the first quarter, the central bank maintains an easing bias on monetary policy with a 40 percent chance of a cut in interest rates by mid-2017.
“We had two months where inflation was much lower than expected, and then oil prices fell, and all the speculators wanted to get out at the same time,” DNB Markets economist Magne Oestnor said.
DNB believes the Norwegian crown is undervalued, however, and that the central bank will refrain from cutting its key policy interest rate from the current record low of 0.5 percent.
“We still expect a higher oil price this year, and that will probably determine the trend for the Norwegian crown in the long term,” Oestnor added.
In Sweden, where underlying inflation in March hit its 2 percent target for the first time in six years, both the central bank and independent economists have concluded that it is unlikely to stabilize at this level yet.
But with solid economic growth and a tightening labor market, the central bank could still end its quantitative easing by summer, while the European Central Bank will likely extend its similar program into 2018, according to Nordea Markets.
“This means we could expect the currency to gradually strengthen from here,” Nordea economist Torbjorn Isaksson said.
The Norwegian crown was seen strengthening to 8.75 against the euro and 8.10 versus the dollar in the next 12 months from current levels of 9.17 and 8.61.
Meanwhile, the Swedish crown would likely rise to 9.15 against the euro and 8.51 versus the dollar during the next year from 9.57 and 8.99 currently.
Writing by Terje Solsvik; Polling by Indradip Ghosh and Vivek Mishra; Editing by Alison Williams