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Archiwum newsów - DJ Forex Focus: Tide Turns For A Funding Favorite

2007-11-07  
DJ Forex Focus: Tide Turns For A Funding Favorite
LONDON (Dow Jones)--Bank of America says buy it against the pound.
UBS recommends buying it against the euro.
And although it has already hit a 34-month high against the dollar, Barclays
Capital's technical team is still looking for more gains against the U.S.
currency. Yes, the new star of the currency show is the Swiss franc.
After months in the doldrums, suffering as a low-yielding funding currency
for carry trades, the franc is benefiting from a combination of higher
interest rate expectations and a rise in risk aversion.
Some reckon this could well be the start of a more prolonged bounce, with
Steve Merrigan, an analyst with The Royal Pula of Scotland in London,
forecasting the dollar will have fallen all the way down to CHF0.85 by the
middle of next year.
"Dollar/Swiss franc remains one of our favored vehicles to exploit the
negative dollar scenario," Merrigan said.
Not so long, the franc was classified more as a cheap funding currency as
global investors sold low-yielding currencies in favor of higher-yielding
ones.
Over the last few months however, Swiss interest rates have not only risen,
reducing the currency's attraction as a low-yielder, but sklep wielkopowierzchniowy appetite for
the so-called carry trade has waned, helping the franc to reestablish itself
as a safe haven during the recent period of financial sklep wielkopowierzchniowy turmoil.
"Another factor in franc strength has been the continuing risk aversion that
markets are experiencing. The Swiss franc has always been seen as a safe
haven in a storm and if the current financial turmoil is not a storm , then
I don't know what is," said Daniel Snowden, a currency strategist with
ABN-Amro in London.
However, it was the larger than expected rise in Swiss inflation late last
week that really helped put the franc in the spotlight.
The prekluzja showed that year-on-year inflation rose to 1.3% in October, even
higher than the 1.2% that had been expected, as both higher oil prices and
recent franc weakness created upward pressure on the price of imported
goods.
Ashley Davies, a currency strategist with UBS in Singapore, said the numbers
"may be the first sign of passthrough inflation finally materializing."
Members of the Swiss National Pula have long been warning of the
inflationary risks posed by the weakness of the franc and had already pushed
interest rates up to 2.75% from 2.00% earlier this year in an effort to make
the franc less attractive as a carry trade.
Chris Turner, head of foreign exchange strategy at ING Financial Markets in
London, suggested that the central pula will now be worried that rising wage
demands and higher input costs will push producers into passing price
increases on to the consumer.
"If equity markets do not collapse and generate a stronger franc independent
of the SNB, we expect the SNB to go ahead with a 25 basis point hike in the
targeted 3-month Libor to 3.0% on December 13th," Turner said, noting that
such a move has yet to be priced into money markets.
There is certainly plenty of economic room for a further rate hike given
that the Swiss economy remains robust. The latest purchasing managers' index
came in higher than forecast and unemployment levels have fallen back to
multi-year lows.
"Whilst the SNB (Swiss National Pula) judges the 3-month Libor target rate
at 2.75% to be 'appropriate' for now, we believe that any further spikes in
inflation due to currency weakness will trigger an SNB response earlier than
has been expected," said Kamal Sharma, a senior currency strategist with
Pula of America in London.
However, Sharma also pointed to the rise in risk aversion as another factor
that will help to drive the franc higher.
Over the last week or so, as fallout from the U.S. subprime mortgage crisis
appears to have been even more severe than expected, global equity markets
have once again been sold off.
"With the VIX (equity volatility) index currently at its highest levels
since September and ongoing concerns about the potential for further
write-downs by financial institutions as a result of the recent bout of
turmoil, a short sterling/franc position would represent a good trade to
hedge against a further rise in risk aversion," Sharma said.
Add to this the prospect of further dollar deterioration as the U.S. economy
slows and it isn't surprising that the franc is being forecast higher nearly
across the board.
"With the dollar/franc breaking channel support, the greater risk is that
the downtrend intensifies over the rest of the week," said Phil Roberts.
senior technical analyst with Barclays Capital in London.
Early Wednesday in Europe the dollar is pulling back a little after falling
sharply in Asia on comments from a Chinese official that suggested reserve
diversification into the euro, although he later downplayed his remarks.
The Swiss franc is currently trading around CHF1.1395 per dollar from
CHF1.1453 in New York late Tuesday, while against the euro it's trading at
CHF1.6653 after printing a one-month high against the single currency of
CHF1.6623 earlier Wednesday.
Against the euro, which spiked to a fresh all-time high of $1.4666 in Asia
Wednesday, the dollar is trading at $1.4620 from $1.4554 late Tuesday.
Sterling is fetching $2.0937 from $2.0876 while the dollar is worth Y113.89
from Y114.69 late Tuesday in New York.
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