USD / SEK – Another round of rate cut in Feb?

During the latest Central Bank meeting in Dec ’12, the Riksbank slashed the reference rate by 25bps, but in the same announcement indicated that further rate cuts in 2013 will be unlikely. This surprise turn of events pushed USD/SEK lower as traders were expecting further rate cuts to follow in early 2013. Price fell from 6.67 on the day of the rate cut to a low of 6.445, before a significant pullback brought price back up to the Channel Top, which is swiftly followed by a selling off once more.

Last week Riksbank’s Deputy Gov Svensson was quoted during his speech in Stockholm at the Swedish Trade Union Congress that current monetary policy is too tight, refueling hopes for rates cuts in the near future. Today, Finance Minister Anders Borg was heard saying that it would be “advantageous for the Krona to weaken”. However, Anders Borg can be considered an alarmist, especially with him saying on record that he believes Greece would exit the Euro-zone in Q1 2013. Hence we should certainly take this statement with a huge pinch of salt. Nonetheless, the is an indication of change in tone from a hawkish to a dovish one, increasing the likelihood and expectations for a rates cut on 13th Feb.

Daily Chart

From a technical point of view, price is still kept nicely within the channel, with a possibility of breakout leading us towards the 6.57 support/resistance. 6.52 (current levels) was acting as support back in Mid Sep and Dec ’12, and resistance on late Dec – early Jan. is a confluence with Channel Top, making any potential bullish breakout explosive and at the same time adding possibility of a downward continuation. Though downside risks may be limited depending on how traders digest this new shift in tone of the Central Bank. Some may argue that the possibility of a rate cut is already priced in with prices rallying significantly since Jan 16th, and they could be right. Any movement back below 6.47 before 13th Feb (assuming all else being equal) will indicate that the rate cut brigade has ran its course, and further rate cuts may not necessary push USD/SEK higher should that happens.

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