RBC has recently weighed in on their outlook regarding the Swiss Franc (CHF) for the next 1-3 months, sharing their projections for the currency pairs USD/CHF and EUR/CHF.
Market's Neutral Stand:
- The market sentiment surrounding EUR/CHF and USD/CHF is predominantly neutral. Notably, the previously observed net long position in USD/CHF has vanished.
CHF as a Funding Currency:
- There is potential interest in utilizing the CHF as a funding currency. However, RBC's carry barometer reveals that there are superior options available, specifically the procyclical currencies like SEK, even if they offer slightly elevated rates.
Switzerland's Inflation Scenario:
- Unique to Switzerland is the situation where both the headline and core inflation figures are beneath the target. Anticipations indicate that these numbers might exceed 2% in 2024 due to the influence of base effects. Nonetheless, the margin of this overshoot appears to be minimal, leaving questions on whether the Swiss National Bank (SNB) needs to enforce further tightening measures.
SNB's Forward Curve & Rate Hike Prospects:
- RBC believes that the SNB's forward curve is rightly priced, highlighting a balanced probability of an additional 25bps rate hike. This perspective aligns with the SNB's guidance, which suggests that further rate hikes might be needed to maintain price stability in the medium term. However, RBC also anticipates that this pricing might gradually decrease over time.
RBC has opted for a neutral viewpoint on the Swiss Franc over the upcoming 1-3 months. The bank has set its sights on a target of 0.91 for USD/CHF and 0.97 for EUR/CHF by the culmination of Q3. Given the current economic and inflationary landscape in Switzerland, along with the SNB's future prospects on rate hikes, RBC believes that any potential shifts in the CHF's position will likely be modest.