Negative Carry On Short EUR/DKK Here To Stay

With EUR/DKK currently close to the central rate of 7.46038, current liquidity in the money market and interest rates appear to be adequate. The bulk of economic forecasts predict the Danish current account surplus will stay high in coming years, which is likely to continue to warrant negative carry on short EUR/DKK. We forecast EUR/DKK at 7.4490 on 1M to 12M as a number of factors support a stronger DKK. We forecast Danmarks Nationalbank (DN) will keep rates unchanged on 12M and resume bond sales in Q4. The latter will take place independently of monetary policy. We recommend Danish pension funds with a hedging mandate and EUR exposure hedge EUR exposure in longer dated FX forwards. Danish importers should use a possible decline in the EUR/DKK spot rate and money market rates to hedge EUR payables on 6M-24M.

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