USD/NOK retreats as US and Norwegian inflation divergence widens

The USD/NOK is loitering near the lowest level since April 2018 as investors reflect on the latest US and Norwegian inflation data. It is trading at 8.2626, which is a few pips above the year-to-date low of 8.1455.

USD/NOK price action

US and Norwegian inflation data

The US and Norway published diverging consumer inflation numbers on Thursday. In a report, Statistics Norway said that the country’s consumer price index declined from 0.3% in April to -0.1% in May. This decline was worse than the median estimate of 0.1%. The CPI rose by 2.7% on a year-on-year basis, which was lower than the median estimate of 2.9%.

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Meanwhile, the core consumer price index declined from 0.4% in April to -0.4% in May. This was also slightly worse than the median estimate of 0.1%. On a YoY basis, the core CPI rose by 1.5%, lower than the previous increase of 2.0%.

These numbers show that the country’s inflation is struggling. This could complicate the future actions by the Norges Bank. In the past few weeks, the bank has insisted that it will start hiking interest rates in the second half of this year. In theory, hiking rates at a time when inflation is falling presents substantial risks to the Norwegian economy. 

In neighbouring Sweden, the headline CPI held steady at 0.2% and fell from 2.2% to 1.8% on a YoY basis.

The USD/NOK also reacted mildly to the latest US inflation data. Numbers by the Bureau of Labour Statistics showed that the headline and core inflation declined to 0.6% and 0.7% from the previous 0.8% and 0.9%, respectively. 

On the closely-watched YoY basis, the CPI rose by 5.0% and 3.8%, respectively. These were the highest figures since 2009 and 1992, respectively.

USD/NOK technical analysis

USD/NOK technical chart

The daily chart shows that the USD/NOK has been in a steep downward momentum in the past few months. Lately, though, the pair’s downward momentum has faded. The pair has remained being in a narrow channel that is shown in blue. It is also slightly below the 25-day and 50-day exponential moving averages (EMA). 

Therefore, the pair will likely break out lower as bears target the next key support at 8.00, which is about 3% below the current level. However, a move above the resistance at 8.50 will invalidate this trend.

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