AUDCHF – Why You Should Care about it

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Why You Should Care about AUDCHF
Why You Should Care about AUDCHF

AUDCHF or AUD/CHF is the notation used for the currency pair composed of the Australian Dollar and the Swiss Franc (CHF standing for Confoederatio Helvetica Franc, the official name of the country in Latin). The pair isn’t popular enough to earn its own nickname yet. The value indicates how many Australian dollars (the quote currency) are needed to buy one Swiss franc (the base currency).

Characteristics of AUDCHF

This Swiss cross is relatively unpopular and therefore has less liquidity than other pairs, even other Swiss crosses. There is something of a relative unbalance between the underlying countries, with the Swiss economy clocking at around $679B in 2017, compared to Australia roughly double that at $1.32T for the same year. Both countries are highly developed, and the disparity in their GDP is reflective of the difference in population.

Other differences that have a direct impact on how the pair behaves are related to the underlying function of the economies: both are highly dependant on exports and have monetary policy in line with that fact. But their approach to their development is vastly different, which is reflected in fiscal policy. Switzerland has built a reputation as the most stable country in the world, which is intimately connected with being the repository of a third of the world’s private wealth. Australia, on the other hand, has a firm reliance on commodity exports, making it a commodity currency, and high interest rates supporting carry trade.

The big players

Monetary policy for the franc is set by the Swiss National Bank (SNB), which fulfills its mandate for currency stability by targeting interest rates. It’s not required to do so, but it will intervene in the exchange rate to keep them within target levels, to support the financial and export sectors of the economy. Naturally, these interventions can go both ways, either to weaken or strengthen the currency, but for years now the SNB has seen the currency as being too strong and taken action to address that.

On the Australian side, monetary policy is set by the Reserve Bank of Australia (RBA) which is mandated to keep the currency stable, which it does by setting a target of 2-3% inflation. The RBA has a reputation for being conservative, and not intervening in the currency as frequently as other central banks, leading to their interventions being more impactful. The bank also has a policy of keeping rates higher than most others, which makes the currency attractive to carry traders.

While the RBA meets every month (except for January) the SNB meets only four times a year.

What makes the currency tick

With the franc being seen as the most stable currency in the world (it is backed in 25% by gold), while the dollar is a commodity currency, the dynamic between these two is quite similar to the much more liquid and popular AUDUSD, or even the AUDJPY. During periods economic uncertainty, investors will move away from more volatile commodity-based currencies to safe havens like the franc.

Even though Australia is the bigger country, because of Swiss stability, usually AUDCHF is driven by changes that affect the dollar, such as the value of its major exports (iron ore, gold) and the economic situation of its largest trade partner: China.

To keep track of the significant events that could impact this currency pair, be sure to check out the economic calendar available on the Orbex website, as well as the trading tips sections to help you get the most out of your trading.

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