A tale of two safe Havens – Japanese Yen and Swiss Franc
During the times of uncertainty and panic and events like Grexit, Brexit, Currency and trade wars, Investors jump and hoard on Japanese Yen and Swiss Franc.
So why does this happen? In Risk-off markets why do JPY and CHF rally?
Let us explore the reasons below
The main reasons are current account surplus and low interest rates. Japan and Switzerland have always been exporting countries on a larger scale. Be it goods or services, both the net exporters trail blaze leaving little room for imports impact resulting in decades of net current account surpluses. As a result Japan and Switzerland have positioned themselves as a net creditor of the global economy.
Another reason is both the countries have maintained low interest rates spurring the economy with consumer spending. Investors tend to borrow both these currencies at lower to zero interest rates and invest in high yielding assets from other countries.
In times of panic, the investors unwind the trades and sell off high yielding risky currencies and go back to parking their funds in JPY and CHF.
Many other factors are responsible for creating the dynamic of buying JPY and CHF along with the two major reasons stated above.
While some of the factors make sense from a fundamental perspective, others are simply the result of speculation.
Now how can we utilize this information and adapt it to our trading?
Both these currencies when crossed with majors provide significant opportunities for trading. With the correct amount of leverage and getting the directional basis, you could see yourself in the green. With the trade wars looming , the US cutting rates and Brexit, these safe haven currencies will be interesting to look into and monitor performance.