On the development of the NOK exchange rates in January 2024

In this blog post, we will analyse the development of the Norwegian krone (NOK) exchange rates in January 2024. We will use a Power BI report that is available in our Portfolio.

The source of all data is the Norwegian central bank – Norges Bank.

January 2024 overview

We start by going to this page, and change the year filter to 2024. We then expand the table and click on January. Doing so, the rest of the page will update with January as a filter. This is a convenient way of filtering a Power BI page without having actual filters visually present in the report.

We then see that NOK strengthened against three currencies – Australian dollar (AUD), Japanese yen (JPY) and Swedish krona (SEK). Similarly to what we reported for SEK in our blog post, there were no dramatic changes in January. All movements were approximately within the range -2% to +2%. It can be noted here that + means that NOK weakened, and – means that NOK strengthened. For example, if the EUR-NOK exchange rate goes from 10 to 11, that +1 change is a weakening of the NOK.

We note that NOK weakened the most – by 2.0% – against Pound sterling (GBP) and then by 1.7% against the US Dollar (USD). NOK strengthened the most – by 2.2% – against JPY.

Zooming in on the chart of percentual exchange rate development, it will look like below. We see that most of the development happened before approximately 25th January, and after that it was relatively flat.

If we compare the NOK development to large currencies like Euro (EUR), GBP, JPY and USD, it will look like below. We see that NOK weakened against all of them except for JPY.

On the other hand, if we compare NOK development to smaller currencies like Brazilian real (BRL) and SEK, it will look like below.

Combining the chart of large currencies with this chart of smaller currencies, gives no clear correlation of NOK exchange rate development depending on the popularity of the currency. It can still be an interesting perspective, however, for example to know if NOK is catching up with large currencies or not.

Finally, we go to this page and review a snapshot taken at the 1st February 2024. The exchange rate development, we have discussed above, but looking at this picture, we get more insights on the NOK bond yields development. For example, one could then see if there is a relation between rate increases and stronger NOK.

We can see in the picture above that the longer-term NOK government bond yields increased more than the shorter-term bond yields. For example, the 10 years bond yield increased by 27 bps – to 3.52%, but the 3 months bond yield only increased by 1 bps – to 4.52%. We also realise that the 3 months bond yield is 100 bps higher than the 10 years yield.

We also look at the bond spreads, which are the differences in yield between shorter-term bonds and longer-term bonds. For example, a common financial metric is to measure the difference in yield between a 5 years bond and a 10 years bond. This is also called “5s10s” and that bond spread is now at 0.13%. This means that the yield of the 10 years bond is 13 bps higher than the 5 years bond. This is normal and usually investors require higher yield for longer duration as the money are “locked” for a longer time period. We see that the 5s10s bond spread increased by 11 bps in January. Since both of the bonds increased, it means that the 10 years bond yield increased more than the 5 years bond yield.

Summary

In January 2024, there were no dramatic changes of the NOK exchange rates compared to major currencies like GBP, EUR, JPY and USD. NOK weakened by 2.0% against GBP and by 1.7% against USD, while it strengthened by 2.2% against JPY. This is very similar to the SEK development as we described in a previous post.

With regards to bond yields, the NOK bonds with longer duration increased more than the ones with shorter duration. For example, the 10 years bond yield increased by 27 bps while the 3 months bond yield only increased by 1 bps.