Comments from Morgan Stanley's monthly currency outlook.
Dated April 1:
- USD/CHF was flat on the month in March ... more a reflection of USD losing momentum, but highlighted that the SNB needs to keep an eye on CHF as part of its monetary policy to reduce deflationary pressures
- We remain bearish on CHF over the longer term
- Would use this dip in both USD/CHF and EUR/CHF as buying opportunities
- CHF now trades again like a leveraged EUR. A decline in EUR/USD causes a slightly larger move higher in USD/CHF. This is what happened in March, causing EUR/CHF to head below 1.05 for the first time since mid-February. Therefore, to forecast moves in CHF, we watch EUR/USD very carefully
- We now expect the USD rally to start again, causing a fall in EUR/USD, we would expect USD/CHF to trade higher on the back of this, initially moving towards the high of 1.01 from mid-March
- We note that the move below 1.05 in EUR/CHF may start to cause worries within the SNB, so any move much below here may cause it to intervene again
- SNB ... the rhetoric remained the same - CHF remains overvalued and the bank will remain active in the FX markets if necessary.
- We think that intervening against just EUR is not practical and that intervening against a basket, say on a trade-weighted basis, would be more appropriate. Sight deposit data suggest that the SNB has not been intervening for a number of weeks, leaving the markets to weaken CHF on their own
- However, we would expect the bank to come back to intervene should there be a rapid appreciation of CHF.
