USD/NOK forms C&H as Norges Bank points to more hikes

The USD/NOK exchange rate pulled back after the latest Fed and Norges Bank interest rate decisions. The pair drifted downwards to a low of 10.66, which was lower than the year-to-date high of 10.87. The Norwegian krone has plunged by more than 31% from the highest point in 2021.

Fed and Norges Bank interest rate decision

The main NOK news was the latest interest rate decision by the Norges Bank. In a statement, the Norges Bank decided to deliver another interest rate hike by 0.25%. It moved rates to 3.25%, the highest level in over 15 years.

The Norges Bank also committed to hike rates again in June in a bid to fight the elevated inflation. If this happens, Norway’s rates will move to 3.50%. The bank cited the need to fight inflation, which it believes remains stubbornly high. It also cited the need to save the Norwegian krone, which has depreciated sharply in the past few months.

Still, despite the actions of Norges Bank, interest rates in the country remains sharply lower than in the United States. On Wednesday, the Federal Reserve decided to hike interest rates by 0.25%, pushing them to 5.25%. 

Therefore, many sophisticated traders see this as a carry trade opportunity, where they borrow in a low-yielding country to invest in a higher-yielding one. In this case, they are borrowing in Norway to invest in the US.

Norway is also facing energy–related challenges as the price of crude oil and natural gas plunges. Brent has crashed to $72.52 while West Texas Intermediate (WTI) has moved to $68.53. This measn that Norway will see less foreign exchange since it is one of the biggest energy exporters.

The next key forex news to watch will be the upcoming US non-farm payrolls (NFP) from the United States.

USD/NOK technical analysis

USD/NOK chart by TradingView

The daily chart shows that the USD/NOK has been in a strong bullish trend in the past few months. Most recently, it has formed a cup and handle pattern, which is usually a bullish sign. It is now forming the handle section of this pattern. The pair has also moved above the 25-day and 50-day moving averages.

Therefore, the pair will likely have a bullish breakout as buyers target the next key resistance point at 11. This view will be confirmed if the pair moves above the resistance point at 10.87.