A golden opportunity has arrived! The second-to-last place in the G10 currencies is about to turn the tide?

As the Norwegian Krone approaches its lowest level in over a year, foreign exchange strategists and investors are closely watching it, betting that it will transform from a laggard among the Group of Ten (G10) currencies to a leader.

Societe Generale SA holds a long position on the Norwegian Krone against the US Dollar and has made it a key trade recommendation for the second half of the year. Meanwhile, investors including Russell Investments are buying the Norwegian Krone, according to Bank of America.

What attracts them is Norway's interest rate advantage over the Eurozone (currently at 75 basis points) and the cheap valuation of the Norwegian Krone. So far this year, the Norwegian Krone has fallen by 8% against the US Dollar and 6% against the Euro, ranking second worst among G10 currencies. Currently, the exchange rate of the Norwegian Krone against the Euro is approaching 12 Krone to 1 Euro, possibly reaching its weakest level in over a year.

Global currency head at Russell Investments, Van Luu, said, "For us, the Norwegian Krone looks very, very cheap." He added, "We rarely go long on the Norwegian Krone, but its current valuation seems very attractive."

The Norwegian Krone has been one of the main casualties of the US Dollar rebound this year, as the Dollar strengthened on expectations that the Fed would cut rates later. Additionally, Norway's inflation rate unexpectedly fell this month, boosting expectations of a rate cut by the Norwegian central bank in December and increasing selling pressure on the Norwegian Krone.

However, the timing of policy easing in this Nordic country may still be later than its major peers. The European Central Bank cut rates in June and is expected to cut again in September, possibly in December as well. The Fed is expected to cut rates at least twice this year, with the first cut coming in a few months.

Meanwhile, Norway's economic growth has exceeded expectations and has performed well in other aspects. Bank of America strategists pointed out that among developed European countries, Norway has the strongest current account surplus and the lowest unemployment rate.

Bank of America predicts that by the end of 2024, the exchange rate of the Norwegian Krone against the Euro will erase this year's decline and strengthen by about 6% next year. Societe Generale SA also expects the Norwegian Krone against the US Dollar to reverse its downward trend this year.

Bloomberg strategist Mark Cranfield noted that foreign exchange traders in the options market are bearish on the Euro against the Norwegian Krone this month, as implied volatility rises and trading volume surges. This indicates that the market is building new positions, expecting the Euro to quickly reverse lower before the Norwegian central bank's policy meeting in mid-August, with nearly a month to go until the next ECB meeting.

Not everyone believes that the Norwegian Krone will rise. Andreas Koenig, global head of foreign exchange at Amundi SA, Europe's largest asset management company, is one of them, pointing out that the Norwegian Krone has historically been a laggard.

Exchange rate of the Norwegian Krone against the Euro approaching its weakest level in over a year Koenig said, "Wherever I go, people always ask me why the Norwegian Krone hasn't become stronger. These people are long, and they are not satisfied with it. So this is a painful trade."

The Norwegian Krone is the smallest in size and the least liquid currency among G10 currencies, often easily influenced by broader trends in the foreign exchange market, leading to difficulties when market participants seek to avoid risks.

Kit Juckes, head of foreign exchange at Societe Generale, said, "The Norwegian Krone is easily sold off. Many people invest in it, but once it starts to weaken, they become disappointed."

The Norwegian government deposits tax revenues generated by the national energy industry into the sovereign wealth fund, while the Norwegian central bank continuously buys foreign currencies on behalf of the government.

Nevertheless, Pictet Wealth Management believes that holding the Norwegian Krone is still worthwhile because it provides exposure to Europe's risks without being overshadowed by the political turmoil in France like the Euro.

Michael Hart, Senior Foreign Exchange Strategist at the company, said, "The small crisis triggered by the French elections is a good sign for the Norwegian Krone. When the spread of French OAT bonds widens, the Norwegian Krone actually performs well. In fact, we are very optimistic about the Norwegian Krone."