After loosing ground for years to other currencies, over last few months US Dollar regained the status of safe haven in turbulent times. Dollar has recorded impressive rally since the beginning of the global financial crisis in summer last year. Now, following Federal Reserve’s recent action, this status is challenged again. USD suffered massive set back after FED had announced an adoption of quantitative easing, which, as far as I’m concerned, means debasing of the dollar by expanding the balance sheet.
Other currencies, which also were considered “safe”, went through their own pains lately. Japanese Yen is clearly way of its highs and likely to continue lower. Same fate befell Swiss Franc, historically the “safe haven” currency outside the dollar. SNB sold Franc on the open market as well as announced plan to start buying bonds, action similar to the one adopted by FED. This would leave Euro as a possible candidate to the title, but ECB is expected to follow example set by other central banks. If this happens, Euro will be next to join the “currency wars”, a rather strange race between countries to devalue their respective monies.
Is there anything safe left in the world of Forex? Well, there is and there isn’t. Not one single currency meets the needs of everybody to be declared a replacement for Dollar or Euro in times of turmoil. It would have to be monetary instrument of a large, growing economy with a stable government. Interestingly enough, currency must have a relatively large debt market , in the form of notes, bonds and other debentures. This market needs to be of some size, to make money flow, both in and out, cheap, fast and easy without undue price swings.  Possibly a basket of currencies could serve this role, once a standard for such is created and adopted by international financial community.
Commodities currencies can, and to some degree, do play part of a safe haven. Their fortunes are tied to prices of commodities, which are typically expressed in USD. With dollar loosing ground, these markets are rising which is reflected in currencies like Canadian Dollar, Australian Dollar and New Zealand Dollar. More and more often Norwegian Krone is mentioned among them. This subject has been brought up in financial press recently and is creating some interest.
Norwegian Krone (NOK) has been named by analysts as “preferred major currency with expected sustained appreciation over the next 18 months”. 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. At this time currency stands out  with unquestionable safe sovereign structural fundamentals, sound macroeconomic policies, relatively strong domestic banking sector quality and higher yields. Currently NOK pays about 2.5% in interest.
Norway’s economy grew 1.3% in the fourth quarter of last year and is not expected to experience as big a downturn as most other leading economies this year, remaining on a relatively even keel. Norway, as a country, has a large current account surplus. The cost of insuring against sovereign default in Norway is the lowest among the countries with the ten most traded currencies. This is done through  credit default swaps.

This chart shows large move in USD-NOK last couple of weeks in Krone’s favor. Certainly looks like there is more to gain. I am not looking for a trade here, for a number of reasons. First, I don’t really see a set up to my liking. Even when fundamentals look great, I still must have a very specific trading situation. Second, when mainstream press picks up a story like this, it is probably too late for a “great” trade, price has already moved and is obvious to everybody. This is apparent on next chart.

As we can see price has turned some time ago. From my point of view, the easiest, and best, opportunity has gone already. Like the trade in EUR-SEK that was featured here couple weeks ago. To be sure, there is more downside potential, but objective is far more limited at this time.
Even though NOK is likely to get stronger over near future, it does not qualify as safe haven currency. It is too one dimensional, with strong correlation to oil prices. We can see how Krone collapsed with crude last summer, which is the opposite behavior than one would seek in a safe haven asset. Also, lack of liquidity, small market size, prevents it from being any real prospect for reserve currency of choice. More like darling of the month, a title that will likely be shared with other currencies for the most immediate future.
At the moment safe haven status of any one currency is questionable, at best. Thankfully, me, and most individual traders don’t need to fret over this. Since we don’t have several billion dollars to park safely over night again and again, this is of secondary consideration to us. We can afford to wait for a trade in any currency, no matter what its status.

Mike K.