Thumbnail Sketch of Sweden and Norway

Here at the start of March, the Swedish krona is the only of the G10 currencies that have appreciated against the US dollar. It has risen by almost 2%. The key drivers include, the low level of tensions in the euro area, even after the Italian elections and the somewhat better economic performance that lends credence to the signals from the Riksbank that a rate cut is unlikely.

Sweden's manufacturing PMI rose back above the 50 boom/bust level in February (50.9 vs 49.2) and the service PMI rose as well (54.6 from 52.6). Domestic demand still appears soft and this is expected to cap growth and keep price pressures subdued. 

The euro has fallen through the SEK8.40 level and is extending its losses today and is now at its lowest level since last September. A test on the SEK8.18-SEK8.20 area looks likely which was seen briefly last year for the first time since 2000. A combination of stronger currency appreciation and soft domestic demand might spark a rate cut by the Riksbank, but this would be several months out, we suspect.

The Norwegian economy appears somewhat softer, though retail sales in January rose 1.2%, which was three times what the consensus had forecast. The Feb manufacturing PMI was weak at 48.3, but has alternated ever month for the past six back and forth around the 50 level. 

Norway will report Jan industrial production figures this week and Feb CPI next week before the central bank meets on March 14. It is most likely to keep its repo rated unchanged at 1.5%.

Unlike the Swedish krona, the Norwegian krone has lost ground to the euro thus far this year (-~1.25%). It partly seems a function of investment flows. From an international portfolio vantage point, the Swedish market is larger than Norway and has more assets. 

The SEK/NOK cross, which is a favorite punt, has broken down and is now below the 2012 low. Short-term technical indicators suggest there is more room on the downside and a move toward the 2011 low near SEK1.105 is possible.