Navigating you through the Scandies

In the triannual BIS survey Scandies are found just outside the top 10 most tradable currencies with an approx. 2% share each of the global FX market turnover of USD 6000bn/day. 

Norway is outside of the EU with a fully floating currency, the economy is heavy reliant on the petroleum industry. The NOK trades correlated to the oil price although the arrangement with the sovereign wealth fund (“petroleum fund”) should make for a lower correlation as all oil revenues are invested abroad.

Sweden is a member of the EU and with a fully floating currency. The Swedish economy is a European dependent export-heavy economy with a traditional manufacturing base although the IT and Services industries are steadily taking over as the engine of growth. Sweden has a defensive balance sheet these days with a Net International Investment Position of +70%/GDP, however since the pandemic and the war in Ukraine, the defensive qualities are yet to be seen and the currency has been vulnerable and weakening in the context of global inflation and elevated geopolitical risks.

Denmark is also a member of the EU but with a pegged currency to the EUR. Having a fixed rather than a floating currency has served the country well, especially so in the context of the global disinflation haunting central banks with an inflation target. In the past 10 years Denmark has succeeded in combining a stable currency with low inflation and a remaining and sizable Current account surplus. Liquidity is strong although periods of weaker turnover can be noted during holidays.

Cross Scandies, NOK/SEK is a popular currency pair speculative trading as it is a relatively market neutral.  

SEK is the most liquid of the Scandinavian currencies

Traditionally krona is held as a procyclical currency and highly correlated to risk appetite. In 2020 however SEK managed to outperform most other currencies despite the pandemic. This could partly be explained by the very positive net international investment position that Sweden has today. According to BIS data krona is the 11th most liquid currency and the daily turnover is estimated at USD 130bn /day. The most active trading counterparties are the Swedish big exporting companies, domestic hedge funds and pension funds and foreign financial institutions. EUR/SEK sometimes offers a good relative value bet on Swedish vs euro central bank policy. 

NOK offers diversification from many other possible currency trades

NOK is an attractive currency for speculators as it offers diversification from many other possible currency trades. Being a European country outside the EU it offers a European alternative to the EUR. Also, its close connection to oil prices makes it suitable as a proxy hedge or proxy position on oil. According to BIS data the krone is the 14th most liquid currency and the daily turnover is estimated at USD 120bn / day. The most active trading counterparties are the Norwegian companies, domestic hedge funds and pension funds and foreign financial institutions. EUR/NOK and NOK/SEK sometimes offers a good relative value bet on Norwegian vs euro central bank and Riksbank policy. Currently in H1 2023 the NOK is very undervalued and trading at record-lows vs the euro.