Safe haven currencies are those expected to maintain or appreciate in value during times of significant global distress, such as geopolitical tensions. The U.S. dollar (USD), Japanese yen (JPY), and Swiss franc (CHF) are recognized as safe-haven currencies. In periods of uncertainty, investors often seek refuge in one or more of these currencies.

Typically, a safe haven currency gains strength when riskier assets experience a downturn. There are two primary criteria that define a currency as a safe haven. First, the country or region should possess substantial foreign currency assets, allowing them to sell these assets and repatriate funds during times of volatility and weak risk markets. Second, foreign exchange traders, aware that certain currencies have historically appreciated during "risk off" scenarios, may purchase these currencies in anticipation of similar behavior in the future.

The strength of the U.S. dollar serves as a barometer for "risk off" sentiment. When the USD appreciates against higher-yielding currencies, it often indicates market dissatisfaction with recent economic data or news. In such cases, investors tend to gravitate towards the safety of the U.S. dollar. Additionally, foreign investors may seek to acquire U.S. Treasuries as a safe haven, necessitating the purchase of USD. When numerous investors engage in this simultaneously, it drives the value of the USD higher.

The Swiss franc is also regarded as a safe haven currency. Its political stability, prudent fiscal and monetary policies, and robust economy make the CHF a preferred choice for international investors during crises. Historically, Switzerland has managed to remain stable amid various global financial upheavals. If the CHF strengthens against higher-yielding currencies, it suggests market turmoil, likely in Europe, prompting currency traders to seek the perceived safety of the CHF. Such movements in the CHF indicate a "risk off" environment.

The strength of the Japanese yen is another indicator of "risk off" sentiment. When the JPY appreciates against higher-yielding currencies, it often reflects market unease regarding recent economic data or news, particularly if it pertains to the United States. In such instances, investors typically turn to the safety of the Japanese yen. Key currency pairs to watch include AUD/JPY and NZD/JPY, as they are popular carry trades associated with a "risk on" strategy. A sudden decline in AUD/JPY and NZD/JPY signals risk aversion, while a rise in these pairs suggests a shift back to "risk on" sentiment.

RORO, which stands for "Risk On, Risk Off," describes a market environment where price movements are influenced by changes in investors' and traders' risk tolerance. According to the RORO concept, safe haven currencies tend to strengthen during "risk off" periods. Conversely, in "risk on" periods, these currencies typically decline in value compared to commodity-based currencies like the Australian dollar (AUD), New Zealand dollar (NZD), and Canadian dollar (CAD). Such fluctuations contribute to volatility in the currency markets.