The Australian dollar continues to grind higher against the Swiss franc on Wednesday, as we are seeing the carry trade continue, at least against the Swissy.
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AUD/CHF Reflects the Rate Divergence Between Australia and Switzerland
The Aussie dollar initially fell a bit against the Swiss franc, perhaps in safe-haven trading or perhaps even just a little bit of profit-taking, as the market has basically been straight up in the air for a while. Ultimately, this is a market that is about central bank policy divergence. The Australians are fairly hawkish, and the Swiss are steadfast, holding to a zero interest rate policy.
Although recently we have gotten a little hotter-than-anticipated GDP and inflation numbers out of Switzerland, there is still a far cry from doing anything to change the central bank's direction. So really, at this point in time, this is a pair that I am only a buyer of. I have no interest whatsoever in shorting it, and I do think that ultimately, the longer-term carry trade plays out quite well.
The 0.58 level might need to be tested for support before it's all said and done
Overall, though, the 0.58 level might need to be tested for support before it's all said and done and we go higher. Or, the other possibility is we finally get a meaningful safety trade play out. In that environment, the Swiss franc might do fairly well. That would be something that I suspect you would see across the board. It would not necessarily be about this pair in particular. You would see multiple currencies falling against the Swiss franc in that environment.
To the upside, I look to the 0.59 level as the next logical target, just based on the large round-number psychology of that level. A breakdown from here, I think, sees plenty of support, not only at 0.58, but possibly at the 50-day EMA, closer to the 0.5730 level.
The carry is fairly wide. I continue to collect it every night and remain long.
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