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19 Mar 2015
CHF under pressure could prompt further SNB action – Rabobank
FXStreet (Edinburgh) - Senior Currency Analyst at Rabobank Jane Fole assessed the outlook for the Swiss economy and the franc.
Key Quotes
“For the time being we think that the SNB will try to maintain the informal bandwidth 1.05-1.10”.
“First, the trade weighted FX basket has pared part of its losses on the back of the strengthening of the dollar and second, we expect the SNB will first employ its foreign currency purchases tool”.
“So what is our base case scenario? We expect the Swiss National Bank to remain active in the FX market in coming weeks”.
“Going forward we might see some diversification flows with the SNB selling its euro’s and buying for instance dollars”.
“Given the large asset purchase program by the ECB, we expect renewed pressure on CHF in coming months”.
“The SNB could probably buy another CHF50 billion in case pressure on EUR/CHF increases. This might not be enough and we do not exclude any further rate cuts and the SNB could possibly lower its rate on sight deposits even to -1.5%”.
“But the question really is whether Switzerland still has the means to fight any appreciation of the franc under all circumstances”.
“In scenario of panic, it would not be entirely inconceivable for the SNB to introduce certain capital restrictions to prevent CHF to appreciate further. However, such a step would be unprecedented for a country and for now it would seem a bridge too far”.
“In the longer run we expect weaker fundaments in Switzerland being harmful for Switzerland as a safe haven status”.
Key Quotes
“For the time being we think that the SNB will try to maintain the informal bandwidth 1.05-1.10”.
“First, the trade weighted FX basket has pared part of its losses on the back of the strengthening of the dollar and second, we expect the SNB will first employ its foreign currency purchases tool”.
“So what is our base case scenario? We expect the Swiss National Bank to remain active in the FX market in coming weeks”.
“Going forward we might see some diversification flows with the SNB selling its euro’s and buying for instance dollars”.
“Given the large asset purchase program by the ECB, we expect renewed pressure on CHF in coming months”.
“The SNB could probably buy another CHF50 billion in case pressure on EUR/CHF increases. This might not be enough and we do not exclude any further rate cuts and the SNB could possibly lower its rate on sight deposits even to -1.5%”.
“But the question really is whether Switzerland still has the means to fight any appreciation of the franc under all circumstances”.
“In scenario of panic, it would not be entirely inconceivable for the SNB to introduce certain capital restrictions to prevent CHF to appreciate further. However, such a step would be unprecedented for a country and for now it would seem a bridge too far”.
“In the longer run we expect weaker fundaments in Switzerland being harmful for Switzerland as a safe haven status”.