If you had to count on one hand the number of haven currencies today – the ones that investors flock to when times are turbulent – you might start and finish with the U.S. dollar. Yes, the greenback has its problems: Interest rates are very low, the U.S. economy is hardly shining bright and the Federal Reserve maintains that it wouldn’t hesitate to start up the printing presses again should things falter.
But against other currencies -- which is really all that matters -- the dollar looks like the obvious choice for haven-seekers. The U.S. dollar index, which measures the currency against a basket of other currencies, was down slightly in late-morning trading on Friday, but remains close to its highest level since September 2010. It is up about 11 per cent since the end of August.
According to Hale Stewart, who writes the Bonddad Blog, the dollar is now approaching key levels that could point to a rally ahead. He believes that, as currencies go, there are no alternatives, and he knocks them down one-by-one.
The Australian dollar? “The Australian economy is actually one of the best performing economies in the globe. But recent numbers have shown some weakness, leading the Australian central bank to lower rates. The primary issue here is a bi-furcated economy; mining and natural resources are doing very well, but other areas of the economy are a bit weaker.”
The euro? Yeah, right. “The weekly euro chart shows that it’s moving through key support levels, with the next logical price target around 118.5.”
The yen? “The yen started to drop in February when the [Bank of Japan] announced they would engage in additional easing and possibly accept a higher inflation rate. The yen has rallied over the last few months largely because it’s considered a haven currency. But we still have the specter of the BOJ in the background.”
The Swiss franc? “The Swiss franc was considered a haven currency, until the Swiss Central Bank intervened aggressively in the market. Since then the franc has been much more subdued.”
The U.K. pound? “The pound is caught between two countervailing trends. One one hand, it’s a haven currency close to Europe, making it the natural choice for the safety trade for EU traders. On the other hand, the UK economy is in terrible shape. In addition, inflation is higher than the BOE wants, interest rates are low and there are further rumblings about additional easing.”
He doesn't mention the Canadian dollar, but the fact that the loonie tends to be in a tight embrace with commodity prices -- and commodity prices are in a tight embrace with the global economic outlook -- it hardly seems like an island in the storm.