US Dollar Swiss Franc Exchange Rate Forecast

Swiss Franc / US Dollar MonthlyTechnical Forecast

Monthly Chart

Prepared by Joel Kruger

Although the market has come under some intense pressure over the past few months, we are finally approaching some formidable support by the 1 handle which suggests that we could be nearing a meaningful bottom and on the verge of a major bullish reversal back above 1.15000 over the coming months. As such we like the idea of buying on dips towards parity, with any additional declines seen limited.

Swiss Franc / US Dollar Interest Rate Forecast

The Swiss Franc continues to set significant highs against the US Dollar and other major counterparts, and the USDCHF has seen very little correlation to shifts in relative yield expectations for each currency pair. Apparent safe-haven demand for the CHF has trumped most other considerations and Swissie strength shows few signs of slowing. To that effect, we see little reason to believe that relatively static yield expectations will force significant moves in the USDCHF.

Swiss Franc / US Dollar Valuation Forecast

USDCHF Valuation Forecast: Bullish

The Franc has surged higher over the past month, with USDCHF tracking near the extreme valuation threshold at 19.9 percent below the PPP-implied exchange rate. Continued USDCHF weakness is likely ahead with the Franc taking on the role of safe-haven currency of late, as evidenced by an increasingly firm inverse correlation between the pair and the MSCI World Stock index amid increasing evidence of a global economic slowdown in the second half of the year. Indeed, the JPMorgan Global PMI gauge of economic activity dropped to the lowest in six months in August, pointing to risk aversion in the medium term. On balance, the implications of current positioning are bullish from a pure valuation perspective but it seems prudent to wait for the time being as a greater disparity presents itself to be exploited.

What is Purchasing Power Parity?

One of the oldest and most basic fundamental approaches to determining the “fair” exchange rate of one currency to another relies on the concept of Purchasing Power Parity. This approach says that an identical product should cost the same from one country to another, with the only difference in the price tag accounted for by the exchange rate. For example, if a pencil costs €1 in Europe and $1.20 in the US, the “fair” EURUSD exchange rate should be 1.20. For our purposes, we will use the PPP values provided annually by Bloomberg. We compare these values to current market rates to determine how much each currency is under- or over-valued against the US Dollar.