The objective of the monetary and exchange rate policy of Danmarks Nationalbank is to keep the exchange rate of the krone stable against the euro and keep inflation low.
Denmark has a fixed-exchange-rate policy. Inflation is kept low and stable due to the fact that Denmark participates in the European Exchange Rate Mechanism (ERM) 2 with the European Central Bank (ECB) and the euro area member states. This is at a central rate of 746.038 kroner per 100 euro and a fluctuation band of +/- 2.25 per cent. While the standard ERM 2 fluctuation band is +/- 15 per cent. Full Report
Monetary-policy interest rates are done via lending and deposit facilities by the monetary-policy counterparties – banks and mortgage banks. With the current accounts and the weekly open market operations as the most important facilities. Full Report
Krone strengthens when capital flows into Denmark and weakens when capital flows out. Trade in goods and services across national borders (cross –border capital flow) determine the supply and demand for kroner in the foreign-exchange market.
With all conditions kept equal- the krone strengthen when the Denmark’s Nationalbank buys kroner against euro and weakens when sold against euro. Buying and selling krone in the foreign exchange market stabilises the krone –short term.
The Denmark Nationalbank keeps Foreign-exchange reserves to use in the foreign-exchange market and to lend funds to financial institutions during financial instability. Having Foreign-exchange reserves is part of Denmark’s fixed-exchange-rate policy. Factors that affect the size of the foreign-exchange reserves include purchase and sale of foreign exchange and central government’s foreign borrowing. Full Report
According to the foreign exchange and liquidity monthly balance sheet for October 2016, Danmarks Nationalbank’s the foreign-exchange reserve increased by kr. 0.1 billion to kr. 449.9 billion while the net position of the banks and mortgage-credit institutes increased by kr. 14.6 billion. Full Report
The increase in foreign exchange and liquidity are the main reasons why I am bullish on USDDKK.
News for the coming week 2016/11/14 -2016/11/18
• Monday 2016/11/14 – FOREIGN DIRECT INVESTMENTS – QUARTERLY TRANSACTIONS, 3RD QUARTER 2016 –Link
• Wednesday 2016/11/16 – GOVERNMENT BOND AUCTION – Link