One of the main macro developments over the weekend has been the surprise decision by OPEC+ to reduce oil production by more than 1 million barrels/day. Will OPEC+ production cut provide the catalyst for NOK rebound? Economists at MUFG Bank report.

NOK has underperformed significantly at start of this year

“OPEC+’s decision to cut production has resulted in the price of Brent reversing most of last month’s losses and brings it back more into line with the average over the previous three months.”

“The higher price of oil should help to provide more support oil-related G10 currencies such as Canadian Dollar and Norwegian Krone.” 

“The NOK has been hit particularly hard this year and is by some distance the worst performing G10 currency (-6.5% vs USD YTD & -7.2% vs. EUR YTD). According to our short-term valuation model that takes into account the price of oil, yields spreads and equity performance, the krone became significantly undervalued in March. The OPEC+ announcement could provide the catalyst needed to trigger a correction higher for the Krone.”