By Jeremy Gaunt, European Investment Correspondent
LONDON, Aug 19 (Reuters) - For much of this year, the Japanese yen and Australian dollar have been the currency pair most likely to tell you what is happening on stock markets.
This is changing. Say hello to SEK/JPY, the Swedish crown versus yen.
Currency trading is dominated at the moment by the daily rise and fall of risk appetite.
The gist is that when investors get nervous they tend to move into currencies they consider the most stable, such as yen, which is supported by Japan's current account surplus. When they feel confident, they look for things such as Australia's far higher, but less stable yield.
This correlation is still in place -- the Aussie was 1.3 percent lower against the yen on Wednesday as world stocks dipped about half a percent.
But analysts have now noticed that it may not be the AUD/JPY trade that most closely mirrors equity ups and downs, but SEK/JPY instead.
Foreign exchange researchers at Barclays Capital say that SEK/JPY has now overtaken AUD/JPY as the yen trade most sensitive to equity markets.
Technically, SEK/JPY has had a "beta" of 1 against MSCI world stocks over the past 52 trading days, essentially meaning that if stocks rise 1 percent, the crown will also rise by 1 percent against the yen.
The compares with a "beta" of 0.95 for the Australian dollar versus the yen and 0.88 for the Norwegian crown/yen trade. At the low end of the scale there is a "beta" of just 0.28 for the dollar-yen.
The dollar has tended to strengthen this year when stocks fall, but not against the yen. The dollar is down about 2 percent on the yen in the quarter to date.
FEELING CYCLICAL
Barclays said their finding was surprising -- which to a certain extent it is. But others have come up with a reason that has more to do with equity portfolio flows than it does with currency trading.
ING notes that equity funds have been shifting strongly into cyclical stocks such as information technology and away from defensive sectors such as utilities.
It then looked at how a variety of developed currencies performed against a ratio of cyclicals versus defensives.
"SEK tends to have one of the most stable and positive correlations against this ratio, while the JPY has the most stable and negative," ING said in a note.
"On the assumption that the (U.S. Federal Reserve) is not going to hike rates early and force portfolio managers back to defensive strategies, it looks like SEK/JPY can continue to appreciate. We target 14.30 in six months."
SEK/JPY was at 12.94 yen on Wednesday, suggesting a more than 10 percent potential gain.
But before bullish investors dive into borrowing yen to buy the crown as a way of tapping into economic recovery and rising equity markets, it is perhaps worth remembering that SEK/JPY is not exactly the most liquid of global currency pairs.
As indication, there were only about 450 prices offered by banks on the pair over the Reuters system by midday in London on Wednesday compared with around 8,000 in the Aussie-yen. (Additional reporting by Jamie McGeever; editing by Stephen Nisbet)