In this short blog post, we shall reply to a member’s question regarding USDCHF:

“I know that CHF is supposed to be a safe haven, something like JPY, and that when markets are risk-averse, people will buy CHF & JPY vs. high yielding currencies. But I noticed USD also gets bought since AUDUSD, NZDUSD also decline. So what is stronger? The USD-effect or the CHF-effect?”

It’s a good question!

RORO Effect

If we take into consideration the evidence offered by HSBC, during times of real risk aversion it would seem that market participants see more value in the USD rather than the CHF.


HSBC has taken into consideration only the stronger market panics of our recent history. But in reality, safe-haven flows are driven not only by extreme events, but also by “weaker” drivers of risk aversion. Perhaps comparing USDCHF to the VIX can help shine some light on this dynamic:

  • During the 1997-1998 Asian Debt Crisis (which caused LTCM to collapse) it appears market participants preferred USD over CHF.
  • After the Dot-Com bubble burst, there was not really any significant shakeup in the VIX or in USDCHF.
  • During the Great Financial Crisis high point (2008-2009) once again participants preferred USD over CHF.
  • During the European Debt Crisis, initially the CHF took over but the USD component ended up stronger in the end.

Here is a closer (weekly) view of how the correlation changes depending on the intensity and nature of the event that triggers risk aversion:

VIX: Losing it’s Appeal?

Most risk aversion studies utilize the VIX Index as the proxy for risk aversion in financial markets. This may have been true for some time, but recently with the QE-effect, the VIX may have lost some of it’s appeal as a risk-gauge.

VIX measures implied volatility in equities…but what if the origin of the risk event is to be found elsewhere? I do believe that we need to be smarter than the rest, and keep our eyes on various risk measures depending on what the market is focusing on. Some good alternatives are:

  • German 10YR Yield vs. VIX: in the past two years the correlation has risen

  • US AAA Corporate Bond Yields (lower yields mean more demand for bonds/protection)

Over To You

The evidence seems to suggest that market participants seek protection within the USD in times of worldwide risk events.

But we need to be smart and ask ourselves: in times of risk aversion, why should we even be interested in a currency pair in which both components (USD & CHF) are perceived as “quality” in times of financial stress? It’s a tug-of-war, and is not the most efficient vehicle to trade if you want to trade risk on/off scenarios.

Since both USD and CHF attract inflows during times of risk aversion, the smarter move might be to split your risk amongst USD and CHF by playing:

  • AudUsd
  • AudChf
  • NzdUsd
  • NzdChf

benefitting from the capital flow that naturally exits high yielding currencies, in search of protection.

Good Luck!

About the Author

Justin is a Forex trader and Coach. He is co-owner of, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.