- Norges Bank's Olsen says ready to act if NOK gets too strong.
- Conservative Muto emerging as leading candidate for Bank of Japan top job, supporting JPY.
- Today focus on G20 meeting and communication, UK retail sales and US industrial production figures and survey data. Only second-tier Scandi data.
The Scandi contributions to the talks of a global currency war in recent days
have been much less confusing than the bewildering G7 communication on exchange rates earlier this week. While the Riksbank on Wednesday signalled complacency about the strength of SEK, Norges Bank sounded somewhat more concerned about NOK appreciation yesterday. In his annual address last night Norges Bank governor Olsen said on the Norwegian krone that ‘if it gets too strong over time, leading to inflation that's too low, we will act.' Olsen stressed however, that NOK developments are only part of the policy equation and that household debt and house prices remain key worries for the central bank.
Yesterday, Riksbank governor Ingves was backed by Swedish finance minister Borg when the latter was quoted saying that the ‘krona will be strong [for] the next couple of years’. While the degree of attention the two Scandinavian countries pay to their respective currencies is not new as such, this week’s comments underline that in the current environment of increased focus in developed countries on the value of their currencies, NOK (but not SEK) upside should be capped.
Separately, a draft statement from the G20 meeting that started in Moscow yesterday included a pledge to ‘refrain from competitive devaluation’ but with a language very similar to that adopted by the Group of Twenty at its November 2012 meeting. At the same time, the IMF was out emphasising that the fund’s assessment of fair value for the relevant currencies did not point at significant deviations. Watch out for further news from the G20 meeting that continues today.
In equity markets both the US and the Asian sessions have been mixed with notably Japanese stocks lower as the yen strengthened; Nikkei down 1.5% at the time of writing. US bond yields dropped as demand for Treasuries bounced back on dismal Japanese and eurozone GDP figures on Thursday: yields down 1-5bp with rates up mainly in the long end recouping part of the decline seen over the past few days. In FX markets a clear division has been seen overnight: EUR, CHF and the Scandies are down against USD whereas JPY, GBP and the commodity currencies are higher. It now seems that a decision on who will become the next Bank of Japan governor will be made in the coming days, and reportedly former finance ministry official Muto is the leading candidate. Muto is perceived as being less dovish than some of the other runner-ups to the job and this has weighed on USD/JPY. NZD held up by strong Q4 retail sales whereas AUD has edged higher despite comments from RBA that the Aussie is ‘incredibly high’.
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