JPY and CHF: Still safe havens? - Rabobank

Jane Foley, Senior FX Strategist at Rabobank, explains that in the post financial crisis years, the market became accustomed to a risk on/risk off environment in which high risk assets were either in or out of favour and in reaction to this behaviour the safe havens JPY and CHF also tended to be either in or out of favour. 

Key Quotes

“2018, however, has been far less binary.  After a good start it has clearly been a very poor year for emerging markets.  However, not all high risk assets have been under pressure.  Specifically US stock markets have appreciated significantly on the back of a strong growth story.  The result has been that the JPY and the CHF have not reacted strongly to the sell-off in EM.”

“In essence the Fed’s tightening bias has done some of the heavy lifting for both the BoJ and the SNB.”

“For years both the SNB and the BoJ have maintained extremely accommodative policies.”

“Safe haven demand has been problematic for both the BoJ and the SNB in previous years.  On most measures, the CHF in particular remains extremely overvalued despite the accommodative policies of the SNB.”

“The latest reading of CFTC data shows that speculators are currently holding fairly significant short CHF positions.  Speculators are also short of JPY, though these positions have been declining since late July coincident with the worsening in pressures in EM.”

“We expect that over the long term that the JPY and the CHF will remains investors’ safe havens of choice.”

“In the short term we would also expect that any negative shock to the market is also likely to result in a sudden JPY and CHF outperformance.”

“In line with our bullish USD view we see scope for USD/JPY and USD/CHF to end the year modestly firmer levels.”

“Assuming the current dynamic in favour of the USD sustains for the coming months we expect USD/JPY to drift back above 112.00. We expect USD/CHF to edge up towards 0.99.”