Fundamental Analysis: DKK Flat after Unsurprising Data

Fundamental Analysis: DKK Flat after Unsurprising Data

The Danish krone has been somewhat volatile but overall unchanged today after data this morning came in as expected. Also among the drivers of stability for the krone is the euro’s lack of significant movement today against most currencies.

USDDKK has been up and down today to around 6.64 kr now. The pound has made a very slight overall gain to 8.685 kr at the time of writing, and the krone is also unchanged against the yen at ¥16.66.

Data in line with expectations but weakness for the euro

This morning’s data from Denmark met or slightly exceeded expectations in each case. Final quarterly GDP growth was 0.1% higher than the forecast, with the annual figure also beating the consensus slightly. Unemployment for February at 3.7% is the same as both the forecast and the previous figure.

These figures combined with better business confidence and retail sales earlier in the week seem to support Danmarks Nationalbank (DN)’s generally positive outlook. DN’s latest publication indicated faith in Denmark’s ability to handle external risks to growth, which are currently on the rise.

Analysts and DN agree that the biggest ongoing risks to the Danish economy and so the krone are Brexit and Sino-American trade disputes. Despite these, the central bank predicts only a negligible slowing in GDP growth in 2021 and an uptick in inflation over the next three years.

Denmark’s membership of the European Exchange Rate Mechanism (ERM II) means in practice that EURDKK almost never deviates more than 1% from its assigned 7.46038. The krone then has been tracking the euro’s overall losses over the past few days against a variety of currencies including the dollar.

Rates are a factor against both the euro and krone. Currently the differential for USDDKK is 2.2-2.45%, which appears likely to continue until at least the third quarter of 2019.

Industrial data in view next week

The most important data from Denmark next week are industrial releases. Firstly manufacturing PMI is on Monday at 09.00 GMT, with the consensus indicating a slight decline to 55.3. Then there’s annual and monthly change in industrial production on Friday at 06.00, with a significant gain likely for the former.

Data from the eurozone are also crucial for DKK early next week. German manufacturing PMI is scheduled for 07.55 on Monday, with the same negative figure predicted again. Then the most important release is eurozone CPI at 09.00. Deviation from the expected and previous 1.5% would most likely cause volatility for the krone.

Krone probably stable until Monday

Fundamentals on the krone are generally neutral, so these factors are unlikely to drive any notable direction for DKK until Monday’s data. These releases though have significant potential to bring direction for the Danish currency.

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