Large dividend payments in March and April are set to weigh on the Danish current account balance.
This is likely to create pockets of EUR/DKK support in an environment that in general we see as EUR/DKK negative, with monetary conditions in the euro area gradually converging towards conditions in Denmark.
We forecast EUR/DKK at 7.4550 in 1-12M and Danmarks Nationalbank will mirror a 10bp deposit rate cut by the European Central Bank in March, lowering the rate of interest on certificates of deposit to minus 0.75% and keep it at this for 12 months.
We recommend Danish pension funds with a hedging mandate and EUR exposure to hedge EUR exposure using longer dated FX forwards (from 2Y) where the carry is positive or in shorter dated FX forwards (1M-3M) where the forward outright level is above the central rate.
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