Gold extends its sideways consolidative price move around the $5,000 psychological mark in Wednesday’s European session as traders seem hesitant ahead of the crucial FOMC decision. The US Federal Reserve is widely expected to maintain the status quo and keep interest rates steady at the end of a two-day meeting. The market focus, however, will be on the accompanying policy statement and updated economic projections, including the so-called dot plot.
AUD: RBA hike underscores domestic inflation risks – MUFG
MUFG’s Senior Currency Analyst Michael Wan highlights that global and Asian rates have repriced since the Iran war, with the Reserve Bank of Australia’s 25 bps hike illustrating how domestic inflation and macro conditions drive policy paths. He notes markets initially saw a narrow 5–4 decision, but Governor Bullock’s comments were interpreted as hawkish, suggesting further tightening remains on the table.
RBA repricing reflects inflation starting point
“The broader picture we find ourselves in is that rates markets have repriced across global and Asian central banks since the Iran war, and perhaps for good reasons.”
“Yesterday’s decision by the Reserve Bank of Australia to hike rates by 25bps was one good example, and highlights how the starting point of inflation and domestic macro setting is also key to the path moving forward.”
“The decision was initially taken by the market as a split one with a 5-4 vote for a hike, but RBA Governor Bullock’s subsequent press statement seems hawkish suggesting that members were debating “when” rather than “whether” to hike rates during the meeting.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Canadian Dollar holds steady ahead of Fed, BoC policy decisions
USD/CAD remains flat after posting little gains in the previous session, hovering around 1.3690 during the Asian hours on Wednesday. The pair holds steady as traders remain cautious ahead of policy decisions from both the Federal Reserve (Fed) and the Bank of Canada (BoC) later in the day.
Traders are particularly focused on guidance from Fed Chair Jerome Powell regarding how the recent surge in oil prices may influence the central bank’s policy outlook. Markets widely anticipate that the Federal Reserve will keep its benchmark interest rate unchanged within the 3.50%–3.75% range for March, according to the CME FedWatch Tool. Such a move would mark a second consecutive pause, underscoring a cautious approach amid rising economic and geopolitical uncertainty.
On the Canadian side, Rabobank strategists Molly Schwartz and Christian Lawrence expect the BoC to hold its overnight rate at 2.25% at Wednesday’s meeting and maintain that level through year-end, despite persistent inflation and slowing economic activity. This March policy view aligns with the consensus among Bloomberg-surveyed analysts and is already fully priced in by markets. The conflict involving Iran and elevated oil prices are seen adding inflationary pressure that monetary policy may struggle to counter, while markets tentatively price in the possibility of a rate hike.
USD/CAD may remain supported as the Canadian Dollar (CAD) faces pressure from softer oil prices. West Texas Intermediate (WTI) crude has pared recent gains, trading near $94.00 per barrel at the time of writing.
However, oil prices could find renewed support amid escalating tensions around the Strait of Hormuz. The US military reported targeting Iranian coastal sites near the strait due to threats from anti-ship missiles to global shipping, according to Reuters. Meanwhile, the BBC reported that Israel claimed responsibility for strikes that killed senior Iranian officials, including Ali Larijani and Basij chief Gholamreza Soleimani.
Canadian Dollar FAQs
The key factors driving the Canadian Dollar (CAD) are the level of interest rates set by the Bank of Canada (BoC), the price of Oil, Canada’s largest export, the health of its economy, inflation and the Trade Balance, which is the difference between the value of Canada’s exports versus its imports. Other factors include market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – with risk-on being CAD-positive. As its largest trading partner, the health of the US economy is also a key factor influencing the Canadian Dollar.
The Bank of Canada (BoC) has a significant influence on the Canadian Dollar by setting the level of interest rates that banks can lend to one another. This influences the level of interest rates for everyone. The main goal of the BoC is to maintain inflation at 1-3% by adjusting interest rates up or down. Relatively higher interest rates tend to be positive for the CAD. The Bank of Canada can also use quantitative easing and tightening to influence credit conditions, with the former CAD-negative and the latter CAD-positive.
The price of Oil is a key factor impacting the value of the Canadian Dollar. Petroleum is Canada’s biggest export, so Oil price tends to have an immediate impact on the CAD value. Generally, if Oil price rises CAD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Oil falls. Higher Oil prices also tend to result in a greater likelihood of a positive Trade Balance, which is also supportive of the CAD.
While inflation had always traditionally been thought of as a negative factor for a currency since it lowers the value of money, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Higher inflation tends to lead central banks to put up interest rates which attracts more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in Canada’s case is the Canadian Dollar.
Macroeconomic data releases gauge the health of the economy and can have an impact on the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the CAD. A strong economy is good for the Canadian Dollar. Not only does it attract more foreign investment but it may encourage the Bank of Canada to put up interest rates, leading to a stronger currency. If economic data is weak, however, the CAD is likely to fall.
United States API Weekly Crude Oil Stock registered at 6.6M above expectations (-0.6M) in March 13
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Silver Price Forecast: Fed decision could trigger a XAG/USD slump toward $64
XAG/USD Current price: $79.36
- The Middle East war is likely to impact central banks’ decisions.
- Market participants anticipate a hawkish shift by the Federal Reserve.
- XAU/USD pressures immediate support at $77.60, break lower exposes $64.
Silver traders are engaged in what so far seems a lost battle to take XAG/USD back towards record highs. The precious metal is stuck at lower levels, and trading around the $80 mark for a second consecutive day, indifferent to the market’s mood swings.
Sentiment has improved a bit on Tuesday, or at least did not deteriorate further due to the Iran war. Stock markets turned positive after a soft start, and kept demand for the Greenback in check, although Wall Street suffered a setback after an optimistic start. The US Dollar (USD) partially lost the market’s favor in anticipation of the Federal Reserve (Fed) monetary policy announcement on Wednesday, which will include fresh economic projections.
The looming announcement weighs on the Greenback, as market players anticipate a chaotic situation in the Fed’s headquarters: Chair Jerome Powell is on its way out, voting members are split, President Donald Trump longs for much lower interest rates, and soaring oil prices anticipate inflation will run higher, much higher than the Fed’s 2% goal in the upcoming months.
True, the Fed is likely to hold rates unchanged and lean hawkish. In an ideal scenario, that should be bullish for USD. But we are far from an ideal world.
Possible Silver reaction to Fed announcement
Regarding precious metals’ behaviour, market players will assess not only the Fed’s decision on the USD, but also how the market’s sentiment unfolds afterwards. But for Silver, it seems a lose-lose scenario.
An extrinsically hawkish Fed will immediately boost demand for the USD versus major rivals. Also, if the Summary of Economic Projections (SEP) includes upward revisions to inflation prospects, and be sure it will, the Greenback will go up.
Excessively concerned Federal Open Market Commission (FOMC) members could initially trigger demand for Silver and Gold, but beware of quick retracements once the market digests the news.
A split vote will be no surprise and probably be the least concerning part of the event. It’s no news, and something for the upcoming Chairman, Kevin Warsh, to deal with.
The Fed would have to deliver an extremely dovish decision, such as cutting rates, to put significant and sustained pressure on the USD, quite an unlikely scenario.
XAG/USD Technical Outlook
The XAG/USD pair is trading a handful of pips above the 23.6% Fibonacci retracement of the $121.66 – $64.08 decline, with the immediate support level in the $77.60 area. A break below it exposes the February 17 low around $72.00, while below the latter, there’s nothing in the way until the bottom of the range. Resistance, on the other hand, comes at the 38.2% retracement at $86.08, while the next Fibonacci resistance comes at $92.87. As long as Silver remains below the 61.8% retracement just ahead of the $100 psychological mark, the risk will remain skewed to the downside.
Other than that, technical readings in the daily chart show XAG/USD is mildly bearish as price holds below the 20-day Simple Moving Average (SMA) near $84.70 while remaining above the rising 100- and 200-day SMAs. The Momentum indicator aims south below 0 and weakens, indicating fading buying pressure after the recent rebound from the mid-$70s. Finally, the Relative Strength Index (RSI) indicator is around 44 with a downside tilt, reflecting increased selling interest.
(The technical analysis of this story was written with the help of an AI tool.)
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Aluminium: Chinese output above cap on price incentives – Commerzbank
Commerzbank’s FX & Commodity Analyst Volkmar Baur reports that Chinese Aluminium production has risen nearly 3% year-on-year and is running above the government’s annualized cap, supported by higher Aluminium prices and redirected Alumina flows as the Strait of Hormuz remains blocked. The bank warns that if Beijing does not raise the cap, smelters will eventually need to scale back output later in the year.
High prices and alumina surplus drive output
“It is expected that Chinese production figures will remain above the 3.75 million-ton threshold in the coming months as well. As long as the Iran conflict persists and renders the Strait of Hormuz impassable, production disruptions in the Gulf region are likely to continue.”
“This has led to a 9% increase in the price of aluminium since the conflict began.”
“In addition, the closure of the Strait of Hormuz is leading to a global oversupply of alumina. Alumina (or aluminium oxide) is primarily used for aluminium production and is imported into the Gulf region as a feedstock for aluminium production.”
“Both rising aluminium prices and a surplus of alumina therefore make it economically lucrative (at least for the moment) for Chinese smelters to produce above the government’s cap. If this cap is not raised, production would have to be scaled back accordingly over the course of the year.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Oil: Price swings ease as conflict risk reassessed – Deutsche Bank
Deutsche Bank analysts note that Brent Oil has stabilised after recent conflict-driven spikes, with prices briefly falling back towards $100 as hopes grew for resumed flows through the Strait of Hormuz. They highlight that International Energy Agency comments on potential stockpile releases and partial resumption at UAE’s Fujairah terminal have helped calm fears of a severe stagflationary shock.
Oil stabilises as supply fears cool
“The sun has shone a little brighter on markets over the last 24 hours, with oil prices stabilising as hopes mounted for a resumption of oil flows through the Strait of Hormuz. So that helped to ease fears about a wider stagflationary shock, with Brent crude (-2.84%) falling back to $100.21/bbl, whilst the 6-month future (-2.64%) fell to $83.40/bbl.”
“But even as there was no obvious sign yet of an off-ramp, we did see oil market pressures that had dominated yesterday’s Asia session ease during European and US hours. One more encouraging headline came from the International Energy Agency, with their Executive Director saying they could release more stockpiles if needed.”
“And while UAE’s Fujairah oil export terminal was hit by an Iranian strike earlier on Monday, it partially resumed operations later in the day. Investors were also pondering the potential for some countries’ vessels to pass through the straits after a few tankers exited the Gulf over the weekend, though this represented only a very small trickle compared to normal volumes of around fifty tankers a day.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Breaking: RBA hikes interest rate by 25 bps to 4.10%, as expected
The Reserve Bank of Australia (RBA) announced on Tuesday that it hiked the Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% from 3.85% after concluding its March monetary policy meeting.
The decision aligned with the market expectations.
Summary of the RBA Monetary Policy Statement
Developing story, please refresh the page for updates.
This section below was published at 00:30 GMT as a preview of the Reserve Bank of Australia’s monetary policy announcements.
- The Reserve Bank of Australia is expected to deliver another 25 bps hike, lifting the interest rate to 4.10% in March.
- Eyes on RBA Governor Bullock’s press conference for cues on the monetary policy path outlook.
- The Australian Dollar is poised for a big reaction to the RBA policy announcements.
The Reserve Bank of Australia (RBA) is set to deliver another 25 basis points (bps) interest rate hike following its March monetary policy meeting on Tuesday, lifting the Official Cash Rate (OCR) to 4.10% from 3.85%.
The decision will be announced on Tuesday at 03:30 GMT, accompanied by the Monetary Policy Statement (MPS). RBA Governor Michele Bullock’s press conference will follow at 04:30 GMT.
The Australian Dollar (AUD) is primed for intense volatility in reaction to the RBA policy announcement and Bullock’s presser.
RBA rate hike is a done deal amid energy-driven inflation risks
As the war in the Middle East continues, central banks globally face a tough call over whether to look through the energy-driven inflation shock or push back against it and risk derailing the economic recovery.
However, the RBA seems well-positioned to counter looming inflation risks by raising the OCR as the economy remains on a solid footing.
Data from the Australian Bureau of Statistics (ABS) showed the Gross Domestic Product (GDP) rose 0.8% in the fourth quarter of 2025, above an upwardly revised 0.5% in the previous quarter and the market consensus of 0.6%. Annual growth accelerated to 2.6%, the fastest pace since early 2023.
Meanwhile, the monthly Consumer Price Index (CPI) rose 0.4% in January, beating estimates of a 0.3% increase. Moreover, the annual inflation reading held at a firm 3.8%, above forecasts for a deceleration to 3.7%.
During a speech at the AFR Business Summit in Sydney on March 2, Governor Michele Bullock said that the Board was uncertain if financial conditions were sufficiently restrictive to return inflation to the midpoint of the target in a reasonable timeframe, highlighting that developments in the Middle East serve as a reminder of persistent geopolitical uncertainty, and warning that a prolonged shock could add to inflation pressures
Last week, RBA Deputy Governor Andrew Hauser warned that Oil price shocks pose upside risks to inflation amid uncertainty tied to the Iran conflict.
“Volatility in Oil prices and tensions in the Middle East pose a genuine challenge for us [the central bank].” However, “The Australian economy in many ways is in good shape,” he said.
Against this backdrop, ANZ, Westpac, Deutsche, Citi and the National Australia Bank (NAB) revised their call, projecting a rate hike this week.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
The AUD is finding its feet against the US Dollar (USD) as it braces for the RBA showdown.
AUD/USD could stage a solid recovery if the RBA’s MPS and Governor Bullock’s words suggest that rate hikes are here to stay.
On the other hand, the Aussie pair could continue to face bearish pressure if Bullock warrants caution on future rate hikes and delivers a wait-and-see guidance.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“The major has slipped under the 21-day Simple Moving Average (SMA) near 0.7070, signaling a loss of short-term upside momentum. The 14-day Relative Strength Index (RSI) has retreated toward the mid-40s, indicating fading bullish pressure and reinforcing the corrective tone after the pair failed to sustain gains above 0.7100.”
“Immediate resistance emerges at the 21-day SMA around 0.7070, followed by the 0.7120 area, which limited the pair in February, acting as the next barrier, and 0.7150 capping the topside beyond there. On the downside, initial support is at 0.6980, which supported the sharp decline on Friday, guarding a deeper pullback toward 0.6960, where the 50-day SMA currently rises. A break below that zone would expose the 100-day SMA around 0.6770,” Dhwani adds.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
GBP/USD bounces from lows as US Dollar retreats
GBP/USD gained almost 0.75% on Monday, bouncing from Friday’s low close to 1.3220 to settle on the high side of 1.3300. The session’s recovery looks corrective rather than the start of a new trend; the pair remains in a clear downtrend from the late-January high near 1.3870, and Monday’s candle has yet to challenge the cluster of resistance around the 200-day Exponential Moving Average (EMA). Price has closed below all of its key moving averages for several sessions, and the burden of proof sits with buyers.
Three high-impact events over the next three days will determine whether the bounce has legs. First up is the Federal Reserve (Fed) rate decision on Wednesday, where markets expect a hold at 3.75%, but the accompanying Summary of Economic Projections (SEP) and Chair Powell’s press conference carry significant weight for US Dollar (USD) direction; any hawkish signal on the rate path would add downside pressure to the pair.
Thursday brings the Bank of England’s (BoE) rate decision, also expected to hold at 3.75%, but with a notable shift in the Monetary Policy Committee (MPC) vote composition; consensus points to a 2-0-7 split (cut-hike-unchanged), a considerably less-dovish reading than February’s 4-0-5, suggesting the committee is in no rush to ease. UK employment data drops alongside the BoE on Thursday, with the International Labour Organization (ILO) unemployment rate forecast steady at 5.2%; average earnings growth including bonuses is also expected to ease to 3.9% year-on-year (YoY) from 4.2%. A softer wage print would reduce the BoE’s rationale for a prolonged hold and could cap any Sterling recovery.
GBP/USD daily chart
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
USD/CHF edges lower as US Dollar softens, SNB and Fed decisions in focus
The Swiss Franc (CHF) gains traction against the US Dollar (USD) on Monday as the Greenback edges lower, allowing USD/CHF to pause a four-day winning streak. At the time of writing, USD/CHF trades around 0.7869, easing slightly after touching its highest level since January 23 on Friday.
The Swiss Franc has strengthened against most major peers since the US-Iran conflict erupted, reflecting its traditional safe-haven appeal during periods of geopolitical uncertainty. However, the US Dollar has remained relatively resilient due to its dominant role as the world’s primary reserve currency, with investors seeking liquidity during times of market stress.
At the same time, rising Oil prices are providing additional support to the Greenback, as global crude trade is largely priced in US Dollars, meaning higher energy costs can indirectly boost demand for the USD.
Attention now shifts to the upcoming interest-rate decisions from the Swiss National Bank (SNB) and the Federal Reserve (Fed) due later this week. Both central banks are widely expected to keep policy settings unchanged, with the SNB rate seen holding at 0%, while the Fed is expected to maintain the 3.50%-3.75% target range.
Elevated Oil prices triggered by the ongoing Middle East conflict are fueling global inflation concerns and prompting several major central banks to reassess their monetary policy outlook with a more cautious or hawkish tone.
However, the situation is somewhat different for Switzerland. Despite being a major net importer of energy, a stronger Swiss Franc helps offset imported inflation by making foreign goods and commodities cheaper in local currency terms.
A Reuters poll published earlier on Monday showed that all but one of 29 economists expect the SNB to keep interest rates at 0% through 2026. The survey also suggested that policymakers are likely to rely on foreign-exchange intervention rather than a return to negative interest rates to counter excessive Swiss Franc strength.
Meanwhile, traders have also sharply trimmed expectations for Fed interest rate cuts, with markets now pricing in around one cut by year-end, compared with at least two cuts expected earlier. Inflation remains above the Fed’s 2% target, and renewed price pressure linked to higher energy costs has added upside risks to the outlook.
Investors will therefore closely watch forward guidance from Fed Chair Jerome Powell for clues on how policymakers plan to balance persistent inflation risks against downside risks in the labor market.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.