After strengthening considerably in H1/2021, the ISK gave way slightly in Q3. In large part, we attribute this to three main factors:
- The early-summer spate of foreign currency inflows for securities investments has slowed to a trickle.
- The rise of the Delta variant of COVID-19 in late July and the subsequent tightening of border restrictions dampened expectations of tourism-related FX inflows.
- Iceland has been running a deficit on goods and services trade in recent months, not least because of the surge in domestic demand.
As usual, FX flows relating to registered new investment by foreign investors were mapped out in the most recent issue of the CBI’s Financial Stability report. According to that report, net foreign investment-related inflows were strongly positive early in the summer but turned slightly negative in July and August. As the CBI notes, the inflows early in the summer were mainly in connection with non-residents’ purchases of listed equities. As the chart shows, flows relating to registered investments have overall been considerably more positive since Q2 than they were from mid-2020 through end-March 2021. In our opinion, this played a role in the appreciation of the ISK in H1/2021.