Safe Haven Currencies: Where Are Investors Parking Their Money Amid the COVID-19 Outbreak?
As we mentioned in our first Coronavirus feature article, there are ways on how you can navigate the market even during a crisis like this. In our first article, we understood how the COVID-19 affected world markets and why.
In this second feature article, we’ll now be talking about how we, as traders and investors, can secure profits amidst all the turmoil– especially if you are in quarantine.
The Current Situation In the Philippines
The World Health Organization declares COVID-19 a “pandemic,” and its effects are not something to be taken lightly. The masses have been panic buying. Enhanced community quarantine has been implemented by the Philippine government which further led to disrupted business operations, including but not limited to temporary closures of malls and restaurants.
Moreover, the Philippine Stock Exchange (PSE) shortened its trading hours for a month. In hindsight, everyone is profoundly affected by it. Not even the largest stock exchange in the world is immune from it. For the 1st time since 2008, the New York Stock Exchange (NYSE) reportedly had its trading halt triggered by the sudden market drop.
So what do these all mean for investors, particularly Forex traders?
Undoubtedly, we all want to protect our assets and manage our wealth, especially in a crisis. Thus, with the current harsh market conditions, the next logical step for investors losing confidence in high-risk assets is to move to a safer form of investment indefinitely.
The question is, how do we define safe, and how should we qualify depending on our risk-appetites to avoid further permanent losses while still maximizing our profit potential? In the following section, we have examined and laid out the top 4 investments worth keeping in Forex trading. Here are the “safe-haven currencies” you should consider, particularly during the COVID-19 outbreak:
Did you know that gold served as a form of insurance against hostile markets and economies? As a physical commodity, its intrinsic value is less likely influenced by the decisions of central banks on interest rates. Also, unlike currencies, its supply cannot be manipulated through paper printing.
One historical and record-breaking strength of gold was seen after the 2008 global financial crisis. The influx of investment caused the price of gold to rise by nearly 24% during 2009, continuing this upward trajectory into 2011 when the ratings agency Standard & Poor downgraded the US debt creditworthiness from AAA to AA+.
While gold’s plunge during the COVID-19 global pandemic may be tagged as the worst week since 1983 by Bloomberg, this is the time to focus on the long-term implications. A full-blown risk-off season could push gold prices higher eventually, with its limited supply, long-term demand, and permanence.
One of the key characteristics to look for in an investment, especially in a meltdown, is liquidity. How easily your assets can be converted into cash is essential. In other words, cash is king. As USD represents the world’s reserve currency, it follows that it is the most liquid on the Forex market.
Despite any economic downturn that has happened over the past 50 years, it is evident that any form of risk results likely in more demand for dollars, as one of the most popular flights to safety by traders such as in the case of the world right now, where a lot of Central banks are injecting a lot of liquidity into the markets. Hence, the USD is outperforming the other major currencies right now.
Aside from its sustained liquidity in times of financial distress, this currency’s relationship with USD is interesting. Amid the global changes happening, extreme volatility in the market is expected. Incidentally and historically, JPY often appreciates against the dollar when volatility is experienced.
Market jitters further lead to “risk-off” investments, moving money back into domestic markets, which then strengthens the yen with the country’s high trade surplus versus its debt. As a major global currency, Japan is further seen as a net creditor to the rest of the world, thereby suggesting that JPY would remain an effective investment in a time of crisis.
The political independence of the Swiss government from Europe is another notable factor to look at. Because of this, it became an attractive source of capital, even during political turmoil and unfavorable economic circumstances.
In fact, during the eurozone debt crisis, CHF became so strong that the Swiss central bank needed to introduce a temporary currency peg to try weakening this domestic currency. It still applies that the franc has a substantial value against both the US dollar and the euro. Thus, this remains to be a safe haven for many investors.
Initially, having the analysis paralysis in trading is normal, especially during a crisis. However, you don’t have to stay stuck in losses, more so, worry about your assets. Now that you are more equipped as an investor by knowing these safe-haven currencies, you can finally make your trades crisis-proof even during trying times such as these!
With the help of proven strategies and analytical tools by our expert mentors, you can learn to ride the wave and win this game even if you are currently stuck at home!
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