Norway’s krone: the new safe haven currency?
The Swiss National Bank’s decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.
Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen. While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.
Simon Derrick at Bank of New York Mellon says: “The dollar has clearly been supported by haven flows during the current crisis. “But, in the longer-term, the sheer scale of US fiscal spending and the lack of international capital available to support it represents a direct threat to the dollar’s strength.”
The other main beneficiaries during the current crisis, the Swiss franc and the yen, have both lost their haven status in recent weeks. The Swiss franc has been driven lower by the SNB, which last week intervened to sell the currency, saying its recent appreciation represented an unwelcome tightening in monetary conditions.
Meanwhile, the yen has been undermined by a series of data showing a steep downturn inJapan’s export-driven economy. This has helped stoke expectations that the Bank of Japan will follow the SNB and intervene to weaken its currency.
So where do currency investors turn now? One answer could be Norway.
David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”
This might seem surprising. Only last December the krone dropped to a record low against the euro, as falling oil prices took their toll on the currency. But, as crude prices have stabilised, the oil producer’s currency has fought back strongly.
Indeed, the krone is one of the few currencies that has outperformed the dollar so far this year, rising more than 3 per cent to NKr6.694. It has soared 11 per cent to NKr10.925 against the euro.
Mr Bloom says: “The Norwegian krone is our preferred major currency and we expect a sustained appreciation over the next 18 months.”