CHF is the best safe haven, or is it? - Rabobank

Analysts at Rabobank explained that they have argued on many occasions that the CHF is on paper the best safe haven currency.

Key Quotes:

"Switzerland benefits from both a current account surplus and a strong budget position. Its legal, government and central bank systems are highly credible and importantly there is a decent level of liquidity in the CHF. In addition, despite (or perhaps because of) its lengthy struggle connected with an overvalued currency, Switzerland remains a highly competitive economy and it is frequency named the World’s Most Competitive.

For investors, however, there are draw backs with the CHF and these stem from the strong barriers maintained by the SNB to offsets speculator interest in its currency. Not only does the SNB maintain negative interest rates but it had made it very clear that FX intervention is a policy tool.

By almost all academic measures the CHF is overvalued and currency strength comes at a price. Not only is it a battle for exporters but disinflation is a constant concern. For 2016, the SNB forecasts inflation at -0.4%. For 2017, only a positive 0.2% inflation rate is forecast."

"By contrast to the CHF, in spite of the significant drop in the value of USD/JPY since the start of this year, the JPY is not overvalued on all measures. Also, as a G7 country, Japan’s MoF would be risking significant international criticism if it were to intervene in the FX market. The fact that intervention is a bigger risk in the CHF is likely a contributing factor behind the trend lower in CHF/JPY between mid-2015 and mid-2016. In recent months the currency pair has remains range bound but we would judge a rise in US political uncertainty as favouring the JPY vs the CHF and would look for a move back towards the June low near CHF/JPY102 in such circumstances."

Key event: US election panel

Meanwhile, don't miss our US election panel with expert guests, Adam Button and Martin Armstrong, hosted by FXStreet's Ross Burland.