In recent weeks gold, the Swiss franc and the US lead currency logged noticeable gains. Conversely, the Brazilian real, the Chilean peso, the South African rand, the Hungarian forint, the Thai baht, the Norwegian krone, the New Zealand and Australian dollars lost between 4 and 7% of their value in USD. Although the AUD, NZD and above all the NOK are solid currencies, their currency markets are rather narrow and therefore always susceptible to corrections in times of crisis (liquidity argument) and are also commodity-heavy. And commodity prices have again come under massive pressure. Quite textbook-like. But the euro also fell against the USD from 1.12 to 1.08, a three-year low. The same applies to the EUR/CHF currency pair: at 1.06, the single currency is trading as weak against the Swiss franc as it was last in the spring of 2017 before the elections in France.

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With the strengthening of the Swiss franc against its main trading currency, the question of whether the Swiss currency guardians will once again become active in the currency market arises. Since the SNB always keeps a low profile with regard to foreign exchange interventions, the weekly sight deposits of the commercial banks with the SNB provide a first indication of this. The principle behind this is: If the SNB buys euros during its interventions on the foreign exchange market, it credits the equivalent value in Swiss francs to the commercial banks' SNB accounts. Their sight deposits increase accordingly. So far, the increase in demand deposits has been moderate over the course of the year. However, the next publication of sight deposits in the current week will first show whether the SNB did not have to intervene massively again last week in order to prevent a further rise in the CHF. According to SNB President Jordan, however, not only the uncertainty regarding the corona virus is partly responsible for the strength of the Swiss franc, but also the US Treasury, which again added Switzerland to its watch list of possible currency manipulators in January. The expectation that the SNB would no longer be able to intervene to the same extent on the currency market led to a small wave of speculation in favor of the franc.

 

This provides an additional reason for the SNB to eagerly anticipate that the coronavirus threat has soon passed its zenith, that the markets recover as uncertainties weaken and that a correction can take place in the safe haven currencies - without need to actively intervene in the currency market itself. 

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Dr. oec. Susanne Toren

Chief Economist

Assetco Management

susanne@assetco.ch