Swedish Krona Bullish After Riksbank Rate Hike, But Exports Could Suffer

Includes: ERIC, FXS, VOLVY
by: Forexyard

The Swedish economy is once more at the forefront of Scandinavian news, with the krona [SEK] bullish against its primary rivals. After an increase to the short-term repo rate by the Riksbank, forecasts on the SEK appear to favor additional gains throughout 2011, but the cost exporters will bear from this increase has become a concern.

A variety of industries in Sweden have benefited from the competitiveness of Swedish goods. The Swedish telecom industry continues to hold a strong competitive edge, with Ericsson (NASDAQ:ERIC) posting steady growth. Truck-maker Volvo AB Asia also posted a 50% increase in sales over the last nine months.

The downside to the latest upsurge in the krona, however, has been that manufacturers and a variety of retail companies are suffering losses from a decline in exporting power. The rising price of raw materials and crude oil has gouged Sweden’s manufacturing industry, as SKF AB [SKFB] – a leading ball-bearing manufacturer – reported lower than expected profits; citing high raw material prices as a factor.

As the Riksbank recently increased its short-term repo rate to 1.50%, the krona has seen continuous gains. The EUR/SEK posted a sharp drop Tuesday, following the Riksbank decision, from 8.7809 to as low as 8.7426. The USD/SEK witnessed a similar drop from 6.5000 to as low as 6.4572 before retracing back to its current price of 6.4640.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.