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Safe Haven Down Under? Not So Much

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You may think the Australian dollar provides a port in a currency storm, but be careful.

Greece. Spain's bank audit. The Federal Reserve's Operation Twist. A euro zone recession.

If you're looking for uncertainties in the currency markets, you have plenty to choose from - and that makes safe havens all the more appealing. (Ask Denmark, where interest rates just went negative as investors fled into the krone.)

The Australian dollar has plenty of long-term safe haven characteristics: a triple-A credit rating, low public debt, exposure to the growing Chinese economy, and plenty of commodity assets. But in the short run, be careful, say the strategists at RBC Capital Markets.

The Australian dollar's "short-term behavior, particularly at times of stress - i.e. its (negative) correlation to risk proxies and its liquidity suggest AUD is a poor store of value," they wrote in a note to clients. In particular, the Aussie has been fairly well correlated with equities since the collapse of Bear Stearns in 2008, they say.

Daily turnover in the Aussie is much lower than the dollar, euro, or Japanese yen, the strategists point out, and the Australian bond market is "dwarfed by the U.S., Japan and the euro zone."

All in all, "in our opinion, AUD is not a safe haven across all investment horizons," the strategists conclude.

Be careful out there.

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