Investors are currently searching for a new safe haven currency as the USDs position is being questioned due to the strain on the US economy and the resulting stimulus packages. At the same time the Swiss Central Bank is getting worried about the export industry and has announced the probability of interventions to weaken CHF.
There have been some statements lately about the Norwegian Krone (NOK) being positioned as an alternative new safe haven. In particular David Bloom from HSBC has claimed that the NOK is the "ultimate haven currency", and that "It's probably the best currency in the world." noting that Norway's economy grew by 1.3% in Q4 and was not forecasted to experience as big a downturn as other economies this year. Norway's monetary policy was also NOK supportive, like other commodity-producing countries and it is not expected to resort to quantitative easing policy to boost inflation expectations.
This view has some support, in e.g. that the cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.
At the same time there are several arguments against the NOK being a new safe heaven currency. Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support. But he says: "You are trying to win the least ugly currency contest at the moment. I can't disagree that it might move higher, but I can't get too enthusiastic." His main concerns are the lack of liquidity in the market and the krone's long-held correlation with oil prices.
If we look at a chart of the NOK vs the USD we see the large shifts of NOK as investors pulled money away from it during the credit crunch, as NOK traditionally has been considered a somewhat emerging market economy.
Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.
Another argument is that Norway, similar to Switzerland is dependant on export, so that the Norwegian Central Bank will most likely intervene if NOK appreciates too much relative to others currencies.
Granted the safe-heaven status is more about low volatility than it being strong per se, and it could be argued that Norway has higher chances of intervening than most other countries, amongst others because of the Norwegian Government Pension Fund - International, and that the high volatility we've seen in the past doesn't necessarily limit a lower volatility forwards if the situation is managed properly by the Norwegian CB. But this would require a shift in the school of thought.
But if NOK won't be the new safe currency, what will be? Gold is an obvious traditional placement. At the same time the Chinese economy can be an interesting argument for Chinese, or other Asian, currencies.
The only thing that is certain is that we're facing an interesting situation, and it will be interesting to see how the situation continues to play out.
