Potential signal:
- I am buying here, with a stop at the 0.57 level, with a target of 0.5990.
- The Aussie dollar initially dipped a little bit against the Swiss franc during the trading session on Tuesday but continues to see a lot of buying overall.
AUD/CHF
The Aussie dollar initially dipped a little bit against the Swiss franc during the trading session on Tuesday but then turned around to show signs of life by breaking above the 0.58 level. We have, in fact, shown signs of strength and have overcome another large, round, psychologically significant number, at least so far.
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Interest Rate Differentials and the Carry Trade
But when I look at this, I also recognize that there is a major interest rate differential between these two currencies. After all, the Swiss National Bank is happy hanging around at the 0-interest rate area, and of course Australia has been a bit more hawkish as of late. So, with that being the case, it makes a certain amount of sense that this pair continues to grind higher.
And I do mean the word grind. I'm not looking for explosive moves. I buy other currencies against the Swiss franc to continue to get that swap at the end of every day. This is a turtle in the forex world, if you will. Although the Aussie itself can move quite a bit, really all one has to do is look at the Aussie against the US dollar, and you can see how it has slowed as of late.
Overall, I do like the idea of buying dips down to at least 0.5680. We'll see if we can stay above there. As long as we can, it opens up the possibility of holding on to a longer-term move and thus collecting that swap at the end of every day. I try to keep this simple. I do not want the 0 interest rate currencies out there: the franc and the Japanese yen. The Japanese yen does come with a little bit of an intervention threat; the Swiss franc, not so much.
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