Sweden, Norway currencies poised for 2018 rally after weak year: Reuters poll

OSLO (Reuters) - The Swedish and Norwegian currencies will strengthen significantly against the euro and dollar in 2018, building on gains seen at the start of the year, a Reuters poll of economists showed on Friday.

The two Nordic currencies sharply underperformed in 2017, with the Norwegian crown dropping over eight percent against the euro to end the year at 9.85, while analysts last January had predicted it would in fact strengthen by three percent to 8.80.

The Swedish crown also weakened despite predictions of the opposite, and economists pointed to weak housing markets in both countries as a key driver of investor anxiety.

The outlook for 2018 is nevertheless positive, and the central banks of Norway and Sweden plan to begin a gradual tightening of monetary policy after years of ultra-cheap cash, which may also contribute to currency strength.

In Norway, a recovery in the price of crude oil to the highest level since mid-2015 is also expected to spur faster growth, and the central bank recently said it plans to hike rates by the end of the year.

"Both the Swedish and Norwegian crowns are significantly weaker than fundamental factors indicate," Nordea Markets Chief Analyst Erik Bruce said, adding that the chances of a housing market collapse had been exaggerated.

In the poll, economists predicted the Norwegian crown will rise by 5.9 percent against the dollar and 5.7 percent against the euro over the next 12 months.

"As worries about the housing market recede, we expect the market to return focus to traditional factors like higher oil prices, a solid Norwegian economy and prospects of a rate hike from the central bank, and then the crown will strengthen," Nordea's Bruce said.

The Swedish crown was forecast to gain a little over 6 percent from current levels against the dollar and 4.3 percent against the euro in the course of the year.

"The Swedish crown has weakened significantly, and we don't see this as a lasting phenomenon," Bruce added.

(Other stories from the January global foreign exchange poll: [L4N1OY39I])

(Polling by Indradip Ghosh and Shrutee Sarkar; Writing by Terje Solsvik; Editing by Jeremy Gaunt)