All Hail The Australian Dollar. By Gary Stride

In these troubled times, a safe-haven currency rarely does what its label says.

Forget the yen, the constant stream of disappointing domestic data and the machinations seen in yen crosses make the Japanese unit too hot to handle of late.

Forget the Swiss franc, for although the Swiss National Bank is the only seller, it has been very successful in keeping the franc in a tight range against the euro for some time now.

Therefore, I present the Australian dollar.

Now, I know that the Aussie is not normally seen as a safe-haven but as Commerzbank AG says, with good fundamental data and solid national finances, Australian government bonds and the Australian dollar are safe haven par excellence.

I know that the Aussie slipped to a fresh eight-month low Wednesday but that's nothing compared with the recent lows seen in the euro and sterling against the surging greenback.

And, I also know that the Reserve Bank of Australia's minutes from its last rate meeting May 4 came out on the dovish side Tuesday, indicating that the bank is in no hurry to follow up its 25 basis point rate hike in May with another anytime soon.

But here are some positives for the Aussie dollar.

Credit Suisse thinks the RBA's upward revisions to its GDP and inflation projections suggest at least another 50 basis points of rate hikes over the next 12 months.

It adds that Australia's mix of carry and a strong and improving credit profile will attract reserve manager flows diverted from the embattled euro.

Royal Bank of Scotland looks for the RBA to hike rates again in August and says the outlook for the Aussie dollar remains positive on the back of buoyant growth in Asia, especially China, although it does add a caveat that both the Canadian and New Zealand currencies look better placed to benefit from a near-term pick-up in risk.

BNP Paribas says continued risk-aversion may put pressure on the Aussie dollar but that real money funds and foreign exchange reserve managers will be looking for alternative destinations for funds currently parked in the euro. This should limit any downside the Australian currency may suffer.

Overnight, the Aussie dollar sold off sharply although that had little to do with domestic issues such as Westpac-Melbourne Institute's consumer confidence index falling by 7% to 108 in May. Instead, it was the bombshell dropped by the German financial regulators late Tuesday who imposed an immediate ban on naked short sales of European government bonds, credit-default swaps and shares of the top ten banks and insurers.

The market's first reaction was to dump the euro as it is now seen as the only European instrument than can be sold without restriction.

The euro slumped below $1.22 for the first time in over four years, triggering a general selloff in the risk currencies including the Aussie dollar.

In Asia Wednesday, the euro's slide abated somewhat but it still managed to print a fresh four year low of $1.2143 before recovering back above $1.22 in early European trade.

Around 0700GMT the Australian dollar trades at $0.8580, down from $0.8614 in late New York trade Tuesday, the euro fetches $1.2226, up from $1.2180, the pound is worth $1.4365, up from $1.4295 while the dollar fetches Y92.05, unchanged for late U.S. levels Tuesday.