The Aussie dollar has sold off against the Swiss franc on Wednesday, as traders continue to price in risk, and at the same time, the interest rate differentials between currencies.
AUD/CHF
We’ve seen the Aussie dollar sell off a bit during the trading session across the board, not just against the Swiss franc, as risk appetite has certainly taken a bit of a beating. That being said, I think we’ve got a situation where traders are probably going to continue to look at this as a positive market and quite frankly, any opportunity they get to take advantage of a little bit of a pullback they probably will.
The 0.56 level is an area I’m watching very closely because structurally it’s been important a couple of times going back the last 2 years or so. A pullback to that area to me looks very enticing and I think I would have to be a buyer at this point as the Australian dollar, of course, is so strong against so many other currencies.
The Swiss National Bank and Interest Rate Differentials
In this particular pair, you have the Swiss National Bank which is doing everything it can to keep rates at 0 and then on top of that, we’re also threatening intervention if the Swiss franc gets too strong. Now, this pair won’t be what triggers that, it will probably be the Euro against the franc, but you can see where there might be a little bit of underlying weakness in the Swiss franc that continues to attract sellers of the franc, in this case buyers of the Australian dollar, as the interest rate differential does pay you over time.
I suspect given enough time this pair reaches the 0.5750 level, possibly even 0.60 over the longer term. If we broke down below the 50-day EMA, currently just above the 0.55 level, then I have to reassess things, but I still would not get short of this market.