- The Danish FX reserve was unchanged at DKK464bn in November.
- That was the eighth month in a row without FX intervention from Danmarks Nationalbank.
- We forecast EUR/DKK at 7.4425 on 1-6M and 7.4450 on 12M and for DN to keep the key policy rate unchanged at minus 0.65% on 12M.
Danmarks Nationalbank (DN) has just published November’s FX reserve and central bank balance sheet. The FX reserve was unchanged at DKK464bn in November, with DN making no FX intervention. Government deposits were DKK139bn in November, down from DKK141bn in October.
That was the eighth month in a row without FX intervention, which highlights that it has been a quiet time for EUR/DKK since the French election, which prompted some FX intervention selling of DKK at the beginning of the year. EUR/DKK traded close to the 7.4400 level during November. It is furthermore the longest period of no FX intervention since the beginning of 2014, where DN went 14 months without intervening in FX markets.
In our view, EUR/DKK is stuck in the 7.4340-7.4450 range, with DN ready to step into the market around the level of 7.4330-40. We forecast EUR/DKK to trade around 7.4425 on 1-6M and 7.4450 on 12M and for DN to keep the key policy rate, the rate of interest on certificates of deposit, unchanged at minus 0.65% on 12M.
A focus on European politics in the market for EUR/DKK may return next year, with Italy set to hold elections, which could trigger demand for DKK. In addition, banks’ net position will probably drop in Q1 18, which means slightly tighter DKK liquidity – another DKK positive. Finally, Danske Bank’s DKK Exchange Market Pressure Index (EMPI) continues to signal persistent downwards pressure on EUR/DKK as DKK remains supported by strong economic fundamentals, e.g. a rising current account surplus. Hence, there is a risk to our forecast above that EUR/DKK will decline at the beginning of next year and put an end to the FX intervention drought.
