Factors currently influencing the CHF and opportunities
The Swiss Franc has seen some crazy moves since April.
In the last quarter, we saw the CHF weaken on the onset of the Russian invasion. Then the SNB raised rates by whooping 50 bps for the first time in years. This led the Swiss government bond yields to spike with USDCHF weakened in days.
Since then, speculators have pulled back rate hike bets in the face of an economic growth slowdown in Europe. with the Swiss 2 year bond yields back below 0%.
So what does this mean for Swiss Franc crosses?
USDCHF
I expect the currency to weaken against the USD as traders bet that the Fed will maintain their tightening policy until inflation is below their 2% target.
AUDCHF
The RBA is also on a tightening cycle with the RBA expected to hike rates further to the end of 2022. In addition to this, the Australian economy seems to be resilient with data coming out of the country being strong. China's PBOC and CCP support for the economy is expected to provide support for the Aussie.
CADCHF
The oil linked Loonie is having support from higher energy prices and a BoC that is also on a rate hiking cycle.
Technically speaking, the pair has gone back above the 100Day moving average and I expect it to test the cluster resistance level 0.769xx from 2014-2019
Other pairs that are interesting are:
In the last quarter, we saw the CHF weaken on the onset of the Russian invasion. Then the SNB raised rates by whooping 50 bps for the first time in years. This led the Swiss government bond yields to spike with USDCHF weakened in days.
Since then, speculators have pulled back rate hike bets in the face of an economic growth slowdown in Europe. with the Swiss 2 year bond yields back below 0%.
So what does this mean for Swiss Franc crosses?
USDCHF
AUDCHF
The RBA is also on a tightening cycle with the RBA expected to hike rates further to the end of 2022. In addition to this, the Australian economy seems to be resilient with data coming out of the country being strong. China's PBOC and CCP support for the economy is expected to provide support for the Aussie.
CADCHF
The oil linked Loonie is having support from higher energy prices and a BoC that is also on a rate hiking cycle.
Technically speaking, the pair has gone back above the 100Day moving average and I expect it to test the cluster resistance level 0.769xx from 2014-2019
Other pairs that are interesting are:
- CHFJPY
Major risk to short-selling the pair is that bond yield differentials are expected to remain high hence JPY strength looks like a long shot for Q3
- NZDJPY
Recovery of the Chinese economy is going to support the commodity-linked Kiwi. However, strength of the pair is not expected to be higher than that of the AUDCHF
Summary
CHF weakness brings a lot of opportunities. However, it's important to note that tailrisk to these trades exist. In the current environment, FX volatility is high and could wipe you out. Be safe out there
