Japanese yen is the cleanest safe-haven asset – HSBC

The US elections may not be a dominant FX driver as the socio-economic conditions that help determine the winner could dominate the FX market for some time to come. Economists at HSBC see the Japanese yen as the best safe-haven asset.

Key quotes

“The pandemic and the associated economic lockdowns and re-openings have created heightened uncertainty around the US economic outlook. This means the evolution of the nascent US economic recovery is likely to remain at the heart of the outlook for FX in the coming months. Indeed, the socio-economic factors that may help shape the outcome of the elections are likely to retain their grip on the FX market for a period well beyond November's poll.”

“We believe any issues around the US economy or the US elections, such as rhetoric from both presidential candidates regarding the state of US-China relations, would be best played at the wings of the RORO sensitivity spectrum. We see the JPY as the cleanest ‘safe-haven’, unencumbered by the intervention threat faced by the CHF. At the other end of the scale are the "risk-on" plays such as the AUD and CAD.”

“The RORO implications on the USD may become less clear in an environment where risk appetite is being driven by US-centric factors. For example, strong US data could be USD positive from a cyclical perspective or USD negative due to a reduced ‘safe-haven’ bid.”