June 23, 2020 / 9:26 AM / 16 days ago

CORRECTED-Norway's crown soars on fiscal strength, quick economic recovery

(Removes reference to NOK performance vs G10 in paragraph 1, corrects car registrations data in paragraph 3, clarifies Norway’s policy on borders in paragraph 2 and background on oil fund in paragraph 9)

By Olga Cotaga

LONDON, June 23 (Reuters) - The Norwegian crown has bounced back from March selloffs and with its central bank already outlining plans to raise interest rates, it looks set for more gains.

Oil-rich Norway has suffered less from the coronavirus pandemic than its neighbours, so the government has been able to open its borders, albeit to only a few countries with similarly low numbers of infections.

Some indicators have bounced back, such as new car registrations up 8% in May after tanking 40% in April on a month-on-month basis. On top of that, Norwegian house prices rose 1.4% in May.

The country’s debt is just 40% of gross domestic product, in contrast to the G7’s debt-to-GDP ratio above 100%. Much of the rest of the world is saddled with debt from stimulus measures taken to lessen the coronavirus blow and is nowhere near raising interest rates.

Norway “seems to be ticking pretty much all the boxes at the moment,” said Adrian Owens, portfolio manager of currency and fixed income funds at GAM.

Norges Bank said on Thursday it expected to raise interest rates from zero earlier than the end of 2023, making it the only central bank in the G10 or the larger emerging markets to talk up higher rates.

The crown also benefited as the country bought the currency with revenues from its oil fund, the Government Pension Fund Global (GPFG), invested in foreign assets.

“You’ve got a country here that’s buying lots of its own currency, it’s got the fiscal wherewithal and the financial resources to do it and the data is coming back much better,” Owens said.

Created in 1990, the fund was set up to shield the economy from the ups and downs in oil revenue by investing the surplus in foreign equities, fixed income and real estate.

This month, Norges Bank is buying NOK 2.3 billion ($241.37 million) a day, the main reason the crown rose 16% versus the dollar and 14% against the euro from March 19 lows.

Goldman Sachs recently recommended shorting the dollar versus the crown, saying Norway’s healthcare system and debt profile are strong enough to withstand COVID-19 shocks.

It recommends shorting USD/NOK with a target of 8.75 from 9.53 now.

“In terms of the assessment that we do - on the forward- looking growth, economic activity, the level of debt - from that perspective Scandies are pretty well positioned,” said Ugo Lancioni, head of global currency at Neuberger Berman.

Lancioni expects the Norwegian crown to rise 5% versus major currencies in about three months. ($1 = 9.5290 Norwegian crowns)

Reporting by Olga Cotaga, editing by Larry King

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