Forex: Swissy negative rates vs RBA easing outlook, opportunity on AUD vs CHF?
FXstreet.com (Barcelona) - After the breaking news that Credit Suisse will join the other largest Swiss banking institution UBS to charge fees and pay negative interest rates on interbank clients - above a certain threshold - in CHF deposits, there has been quite a frantic run to sell the 'closely CB monitored' safe haven Swissy, ending the day as the worst performer.
Far from Switzerland, on the antipodeas, the central bank of Australia - RBA - decided to cut rates by 25bp yesterday, yet there is growing talk that its chairman Glen Stevens will adopt a more conservative 'wait-and-see' mode before resuming what is believed to be an ongoing easing campaign. On the RBA statement, it was mentioned that previous cuts had been working.
Now, if fundamental traders put together the latest developments on both Australia and Switzerland, is there realistically any low risk high reward buying opportunity here?
According to Nomura FX team, the degree that banks pass on charges to their clients makes holding CHF deposit accounts cost marginally more yet not sufficient to offset the CHF 10bln a month current account surplus enjoyed by Switzerland, thus they suggest to fade any CHF weakness. If the assumption turns out to be accurate, it would certainly lead to some selling opportunities in EURCHF, more hard to see where AUDCHF may be headed.
Another valid theory is that since imposing negative rates will inevitably reduce deposits from big institutional clients into the banks, there will be one direct effect, which may potentially lead to another of greater magnitude.
Firstly, an increase in money supply in the Swiss economy is likely to put a dent in any CHF appreciation, with this line of thinking being sustained as long as market conditions don't turn overly risk averse, other it may force investor to seek the 'safe-haven' status of the Swiss Franc anyway.
Secondly, another question is, whether or not the SNB will impose negative rates. As drastic as such call may sound, the latest move by Credit Swiss has the market worried that the Swiss central bank may be next in order to replace the expensive EURCHF peg as the 1.20 'line in the sand' protection.
According to Jamie Coleman, "there is a real risk that since "SNB's reserves have ballooned forcing Switzerland to assume untold liability, between the choice of negative rates and taking your-amount of risk, negative rates is by far the more logical policy."
If the latter assumption comes true, and the SNB shifts to a radical negative rates policy, the AUDCHF may represent an opportunity for a long play. Worth noting is the fact that the Aussie has been upgraded to 'reserve currency' by the IMF recently, and central banks around the world continue to stash AUD-denominated assets in their balance sheets.
In turn, if the SNB still rules out the possibility of negative rates, Nomura beliefs to fade the CHF declines are accurate, and the RBA hints at the need for rates to go lower again to potentially 2.5% in the near future, then perhaps the bears are the ones salivating to play the downside...
Far from Switzerland, on the antipodeas, the central bank of Australia - RBA - decided to cut rates by 25bp yesterday, yet there is growing talk that its chairman Glen Stevens will adopt a more conservative 'wait-and-see' mode before resuming what is believed to be an ongoing easing campaign. On the RBA statement, it was mentioned that previous cuts had been working.
Now, if fundamental traders put together the latest developments on both Australia and Switzerland, is there realistically any low risk high reward buying opportunity here?
According to Nomura FX team, the degree that banks pass on charges to their clients makes holding CHF deposit accounts cost marginally more yet not sufficient to offset the CHF 10bln a month current account surplus enjoyed by Switzerland, thus they suggest to fade any CHF weakness. If the assumption turns out to be accurate, it would certainly lead to some selling opportunities in EURCHF, more hard to see where AUDCHF may be headed.
Another valid theory is that since imposing negative rates will inevitably reduce deposits from big institutional clients into the banks, there will be one direct effect, which may potentially lead to another of greater magnitude.
Firstly, an increase in money supply in the Swiss economy is likely to put a dent in any CHF appreciation, with this line of thinking being sustained as long as market conditions don't turn overly risk averse, other it may force investor to seek the 'safe-haven' status of the Swiss Franc anyway.
Secondly, another question is, whether or not the SNB will impose negative rates. As drastic as such call may sound, the latest move by Credit Swiss has the market worried that the Swiss central bank may be next in order to replace the expensive EURCHF peg as the 1.20 'line in the sand' protection.
According to Jamie Coleman, "there is a real risk that since "SNB's reserves have ballooned forcing Switzerland to assume untold liability, between the choice of negative rates and taking your-amount of risk, negative rates is by far the more logical policy."
If the latter assumption comes true, and the SNB shifts to a radical negative rates policy, the AUDCHF may represent an opportunity for a long play. Worth noting is the fact that the Aussie has been upgraded to 'reserve currency' by the IMF recently, and central banks around the world continue to stash AUD-denominated assets in their balance sheets.
In turn, if the SNB still rules out the possibility of negative rates, Nomura beliefs to fade the CHF declines are accurate, and the RBA hints at the need for rates to go lower again to potentially 2.5% in the near future, then perhaps the bears are the ones salivating to play the downside...
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