Like all currencies, trading the Swiss Franc has its unique features, which means currency pairs will react differently to certain economic events. Here are some things you might want to keep in mind when trading with the Swissy.
Switzerland has an outside impact on financial markets, despite its relatively small size. As a matter of comparison, the population of the entire country is less than New York. However, as a major financial hub, it has a significant amount of foreign investment. As a result, often the currency will respond more to external factors than internal ones.
Traditionally, the Swiss Franc is seen as a safe-haven currency, with the country’s strong commitment to financial security, and keeping the currency tied to gold long (gold reserves back about 25% of the currency). This means that the currency, aside from being influenced by investors seeking security in times of economic stress, is also impacted by movements in the price of gold.
Financial activity is the critical component of the Swiss economy, in addition to exports. This puts additional stress on the central bank – the Swiss National Bank (SNB) – to keep the currency in line with their targets. Generally, the SNB regulates the currency through interest rates and is consistently trying to keep the currency from getting too strong. The strength of the Swissy is not only attributable to demand for the currency from foreign investment but because of the tie to gold, puts a limit on the amount of francs available.
The SNB has four in-depth policy meeting a year, in which they decide rates as well as issue a medium-term inflation forecast. These events are the ones most likely to have a major impact on the currency, especially if the action taken by the bank is unexpected – and can have broad-ranging repercussions beyond currencies.
Aside from that, there are four monthly data releases to keep track of due to the potential impact on the currency:
– Retail sales: Typically released in the first couple of days of the month, is a gauge of the internal health of the economy. Because Switzerland is the target of so much foreign investment, this data has less of an impact on the currency as it would in other countries.
– Inflation rate: Switzerland takes the stability of their currency very seriously, which means the SNB is likely to intervene enthusiastically if the data starts going outside their target range. Higher inflation rates could trigger intervention, counterintuitively pushing the currency higher; while unexpected low inflation could keep the currency relatively weak as it pushes off the possibility of central bank action.
– The balance of trade: As exports of high-tech equipment is also a significant factor in the Swiss economy (including medication). Increased exports show an increased demand for currency as Swiss companies repatriate profits, supporting the currency, and vice versa. On the other hand, the SNB is quite forthright in supporting exporters, and if the currency is too strong in their estimation (something that is a constant in their communications to the market), they could intervene to weaken the franc.
– KOD Leading Indicator: Essentially, the Swiss business confidence index, which has a stronger impact on equities, and that can bleed over into the currency. Higher business confidence typically translates into a stronger franc, and a drop in confidence can imply a weaker currency.
You can keep track of these events in the handy Orbex economic calendar, to stay abreast of developments that can move the markets, and prepare ahead of time. You can choose to trade CHF to USD or USD to CHF. Additionally, the platform offers CHF to GBP, and more- GBP/CHF, EUR/CHF, AUDCHF and CAD/CHF.