FX Daily: Trive Bullish on AUD/CHF

The RBA maintained its current rate while delivering a hawkish message, emphasizing that the future inflation outlook remains uncertain and signalling a willingness to raise rates further if inflation escalates. Additionally, the RBA pushed back against market expectations for a rate cut in December. The overall Swiss economic outlook remains largely unchanged, with the SNB signalling a willingness to implement further rate cuts and expressing concern over a strong franc, which could exacerbate domestic inflation. However, closely monitoring developments in the Middle East is crucial, as any unexpected events could lead to an immediate appreciation of the CHF.

AUD: Hawkish RBA

In the last trading week, the AUD remained under pressure due to global risk aversion, driven by escalating tensions in the Middle East, slower-than-expected Q2 GDP growth in China, and fears of a potential US recession. However, the AUD regained strength later in the week, bolstered by hawkish rhetoric from Governor Bullock during the August RBA meeting.

Governor Bullock highlighted the ongoing uncertainty surrounding Australia's inflation outlook, noting that inflation remains sticky. The RBA Board considered a rate hike during the August meeting, and a rate cut was explicitly ruled out. Later, Bullock reinforced her hawkish stance, indicating that the inflation target range is unlikely to be met until the end of 2025. She emphasized the RBA’s vigilance on inflation risks and readiness to raise rates again if necessary. Bullock also warned that markets are prematurely pricing in rate cuts, with expectations for the first cut in December.

Given this context, the RBA could be the only G10 central bank maintaining higher rates for longer, with the potential for additional hikes if inflation becomes more problematic. Coupled with the recent hawkish rhetoric from the RBA, the AUD may continue to strengthen in the near term, barring any significant negative developments from China or the Middle East.

Currency Strength Between AUD & CHF

CHF: Still under short, but cautious on Middle East

Switzerland's fundamental outlook remains largely unchanged, with the market still anticipating a potential rate cut from the SNB later this year. The latest July inflation data came in at 1.3% y/y, suggesting that the SNB may maintain its current stance, as this figure aligns with their forecasts. Additionally, during the June meeting, SNB’s Jordan expressed concern over a too-strong CHF, noting that it could harm domestic importers and increase inflationary pressures.

However, the recent strength of the CHF has been driven by external factors rather than domestic ones. The currency has benefited from the unwinding of JPY carry trades and ongoing tensions in the Middle East. Recent SNB data indicates that the central bank has not intervened in the market to counter the strong franc, and sight deposits have remained stable. This suggests that the SNB is closely monitoring the current volatility of the CHF and is prepared to intervene if necessary to reduce its strength.

In the week, markets will continue to watch developments in the Middle East. Absent any significant escalation, the CHF could become another funding currency for carry trades, similar to the JPY, and markets might continue to short the CHF during rallies.

AUD/CHF 4H

AUD/CHF Current Retail Sentiment

SNB Interest Rate Probability

RBA Interest Rate Probability

Disclaimer

This material is provided for informational purposes only and does not constitute financial, investment, or other advice. The opinions expressed in this material are those of the author and do not necessarily reflect the views of Trive International. No opinion contained in this material constitutes a recommendation by Trive International or its author regarding any particular investment, transaction, or investment strategy. This material should not be relied upon in making any investment decision.

The information provided does not consider the individual investment objectives, financial situation, or needs of any specific investor. Investors should seek independent financial advice tailored to their individual circumstances before making any investment decisions. Trive International shall not be liable for any loss, damage, or injury arising directly or indirectly from the use of this information or from any action or decision taken as a result of using this material.

Trive International may or may not have a financial interest in the companies or securities mentioned. The value of investments may fluctuate, and investors may not get back the amount they originally invested. Past performance is not indicative of future results.

For more information about Trive International, please visit http://trive.com/int

Additional Information

Investing involves risk, including the potential loss of principal. Diversification and asset allocation strategies do not ensure a profit or guarantee against loss. The content in this material is subject to change without notice and may become outdated or inaccurate over time. Trive International does not undertake any obligation to update the information in this material.

By accessing this material, you acknowledge and agree to the terms of this disclaimer. If you do not agree with these terms, please refrain from using this information.