Sell AUD/CHF at 0.7715 - ANZ

Daniel Been, Head of FX Strategy at ANZ, suggests that on a tactical basis the risk reward for owning the AUD is starting to shift, and a move lower, at least on the crosses, is becoming increasingly likely.

Key Quotes

“The market was pricing too much hope – in particular surrounding the US reflation story. Indeed, our risk sentiment measure has hit levels which has rarely not led to a spike in risk aversion, and historically, this has at the very least stalled the rally in the AUD.” 

“Similarly, while in the very near term we expect that global growth will remain resilient, the signal that has been sent by global order to inventory ratios is likely to be as good as it gets. This too could weigh on cyclical currencies like the AUD.”  

“As such, the global tail-wind which has benefited the AUD for much of this year, will likely dissipate for now. On the domestic front there is little that can offset this fading tailwind.”  

“Despite the positive commodity price shock that we are experiencing, pass though is proving significantly slower than in previous cycles, and will likely remain so. Further, the recent data pulse has been relatively disappointing – particular on the wages front - and this will keep the RBA on the sidelines for some time.” 

“Given all of this we think that there is some risk of near term weakness in the AUD, though we favour selling it on crosses, rather than against the USD. We recommend selling AUD/CHF.”  

“We think that the CHF presents a good long candidate to sell against. Our PCA residual analysis shows that there has been unusual weakness in the CHF, over and above that which is justified by USD strength. With the SNB also not actively easing (though still admittedly focused on the level of the currency), and with a lower political premium relative to the EUR, this seems unjustified for now and as such it presents a good alternate funding for an AUD short.”  

“Sell AUD/CHF at 0.7715, targeting 0.7445. We will reassess the trade at 0.78.”