At their recent meetings, both the Riksbank and the Norges Bank kept rates unchanged though a clear gap has opened in terms of policy bias with the Riksbank sounding increasingly Dovish and Norges Bank sounding more optimistic.
Riksbank Signal Further Easing
Whilst the Riksbank kept rates unchanged as expected the development of them lowering their repo rate forecast has placed bearish pressure on SEK. Inflation forecasts were also revised lower with CPIF now forecast to average 1.6% in 2017 down from 1.9% originally. A further bearish development was the bank announcing the potential for a QE expansion in December. The possibility of further rate cuts has placed greater pressure on the upcoming October inflation print with a disappointing number likely to fuel an uptick in rate cut expectations.
Regarding a QE extension, the Riksbank noted that they wanted to wait for further inflation data and information from other central banks. If inflation surprises to the upside, a slower rate of purchases into June 2017 is likely whereas if inflation fall is line or misses, the current pace of purchases at SEK 45bln is likely to be maintained.
The statement noted that “prior to the monetary policy meeting in December, the Executive Board is ready to extend the purchases of government bonds further.†This suggests the possibility that the board will announce the extension ahead of the official December meeting, perhaps at an executive board meeting. With this in mind, it seems that the Riksbank might seek to avoid the less liquid conditions of December 21st and instead announce earlier such as the December 14th executive meeting following the December ECB meeting and the domestic November CPI print.
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For now, USD/SEK remains above the 2015 high and below the 2009 high. SEK bears will be looking for a retest of the broken 2015 high to provide support for another run higher.
