Warm glow of Sweden's "all weather" currency Ephemeral: The aurora borealis as seen from the Aurora Sky Station in Abisko, Sweden Is the Swedish krona a new haven? Sweden's currency has been shining even as the euro has tumbled, triggering a reappraisal of its role in investors" portfolios. Analysts and investors have long argued that both Sweden and Norway, with their current account surpluses and higher interest rates, should be treated as currency havens. Yet since the onset of the eurozone debt crisis, and as investors have fretted about the effects on other European nations, the euro has risen against the Scandinavian currencies as it has fallen against the dollar. That pattern is changing, though. The single currency hit a 12-year low against the Swedish krona on Tuesday, dipping below SKr8.5, even as it remained at two-year lows against the dollar. The krona's rise can in part be attributed to the muted rise in global equity markets since mid-May. With a strong line-up of exporters, which account for 50 per cent of the country's gross domestic product, the Swedish currency often tracks appetite for riskier assets. The European Central Bank's decision to cut its lending and deposit rates this month is also supporting currencies with higher interest rates as investors prioritise yield: the Australian and New Zealand dollars both hit record highs against the euro on Wednesday. Such a trading pattern has been unusual in the forex markets this year. Until recently, currencies remained in the grip of "risk on, risk off" trading, where they have tended to rise or fall as one against the US dollar and the yen. Since the ECB cut deposit rates to zero, investors have again been more interested in yield differentials. Sweden's central bank may have contributed to the krona's rise, too. As central banks have sounded more dovish on the need for additional monetary easing to stimulate growth, the Riksbank has appeared more hawkish. Sweden is seen as likely to maintain rates at higher levels than in most other G10 countries. This makes it an attractive prospect for yield-hungry investors, including central banks, that are seeking to diversify their reserves. According to Sweden's National Debt Office, foreigners held 50 per cent of Swedish government bonds at the end of April, up from 36 per cent the previous year. A report published by the European Commission at the end of May notes haven flows into the Swedish krona thanks to Sweden's strong public finances, stating that, "unlike in previous periods of severe financial market stress," the krona has held up well. Sweden's economy is not yet suffering the slump in growth that other major economies are experiencing. Minutes from a meeting of the Riksbank this week referred to the "unexpectedly strong development" of the Swedish economy, given the problems in the eurozone, which accounts for 70 per cent of Sweden's exports. The bank expects GDP to grow 0.6 per cent this year, up from a previous forecast of 0.4 per cent. Tom Levinson, foreign currency strategist at ING, suggests the krona is becoming an "all weather" currency, gaining from haven inflows when the eurozone crisis intensifies and benefiting from stronger exports if the eurozone crisis eases. Meanwhile, Carl Hammer, chief currency strategist at SEB, points to the changing behaviour of Swedish exporters as evidence that the krona may be becoming less pro-cyclical. The crash of the krona in late 2008 was partly, he argues, due to demand for exports drying up. That caused Swedish exporters to shut down their substantial forex hedges, weakening the krona. Now, according to SEB's internal research, wary exporters hedge less and on shorter durations, which reduces the correlation between global growth and the krona. Whether the krona will continue to display haven characteristics if the eurozone crisis deteriorates further has yet to be tested. A lack of liquidity - the Swedish krona makes up just 2.2 per cent of the daily forex market, compared to 12.9 per cent for sterling and 6.4 per cent for the Swiss franc, according to the Bank for International Settlements - has seen it sell off in the past when risk aversion has taken hold. Some investors are not taking any chances. Baring Asset Management is among those investors tapering its long Swedish krona positions and switching to the Norwegian krone, which has underperformed during the strike action in the country's oil industry. Investors may yet again throw fundamentals out of the window and revert to "risk on, risk off." For now, though, investors are getting a glimpse of how the krona should perform in more normal conditions.