safe

With the Swiss franc officially out as a safe haven currency, where will investors go to stash their cash?

That’s the big question everyone’s been asking since rumors of a peg surfaced last month. Now that these fears have been realized, currency traders will be anxious to find the next big currency safe haven.

Traditionally, a safe haven requires a liquid currency base, a robust economy, and a history of conservative monetary policy.

Options that satisfy all these requirements, however, are becoming scarce. Not to mention that no central bank wants the currency overvaluation and GDP slowdown that could accompany a rapidly increasing currency.

But like it or not, traders are bound to move somewhere.

Norwegian krone (NOK)

The Norwegian kroner offers attractive interest rates alongside a strong, conservative government with a stable fiscal position, and should be considered the prime candidate for the “next big currency safe haven” designation.

There are caveats, however. With high interest rates, the Norwegian central bank could easily cut interest rates that give the currency much of its appeal. As the WSJ suggests, the currency is also notoriously illiquid. According to the Bank of International Settlements, the krone comprises just 1.3% of the $4 trillion daily market in currencies.

Swedish krona (SEK)

Despite less than ideal predictions for the Swedish economy, the krona is already soaring as investors speculate that it could hold value as a safe haven. With high interest rates and a stable economy, the krona stands behind the Norwegian krone as a prime safe haven opportunity — with many of the same problems.

The Swedish central bank, “Riksbank,” has already delayed a proposed increase in interest rates.

“A debt storm has swept in over Sweden,” Finance Minister Anders Borg said in a Bloomberg report. “Our task is to build security walls, to be careful, to have sufficient security margins, to have the ability to act if the risks we see materialize.”

United States dollar (USD)

With incredibly accomodative monetary policy setting interest rates around 0%, the USD is not the most obvious safe haven investment — but that does not mean it will stay that way.

A low fed funds rate means that the Fed has few options for stemming an appreciating dollar if investors do turn to the dollar. What’s more, U.S. banks are not unhealthy.

The USD could see a spike, particularly as problems escalate in the eurozone.

See the rest of the story at Business Insider

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Original source at: Money Game | http://feedproxy.google.com/~r/TheMoneyGame/~3/tXlRVSSRg7I/the-next-big-safe-haven-currencies-2011-9

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