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About the CAD/CHF (Canadian dollar & Swiss Franc)
Being a less popular currency cross, it doesn’t have a common nickname, yet some traders call it "Loonie Franc"
Breaking Down ‘CAD/CHF’
The Canadian dollar is the world's seventh most traded currency and some central banks keep it as a reserve currency. The Loonie's exchange rate in relation to the rival currencies is densely influenced by crude oil prices.
This is because Canada has vast oil reserves - second only to Saudi Arabia - and is a vital producer of the commodity, with 99% of its crude oil exports shipped to the United States. As per an estimate, more than two million barrels of oil travel from Canada to its southern neighbor every day.
Whereas, the Swiss franc, denoted by CHF as a nod to Confoederatio Helvetica, is a reserve currency. Therefore its value surge during the time of certainty as investors seek safe-haven options. The exchange rate of Swiss Franc is also determined by economic factors such as interest rates, trade balance, and inflation, but the price of gold, oil, and coal also tends to be important.
This currency pair isn’t one of the mainstream instruments, but still apprehends quite a bit of liquidity, while volatility is a little muted. The Swiss economy is relatively quite small, coming in at just $679B in 2017, hardly a quarter of Canada’s $1.65T for the same period.
Correlation is merely a mutual relationship or connection between two or more things.
Positive correlation – The positive relationship merely is when pairs move in tandem with each other.
In the forex world, the USD/CHF, CAD/JPY and EUR/CHF currency pairs are positively correlated. It's because all these pairs have a Swiss Franc in the denominator. So, any change in the CHF will be reflected in these pairs.
Negative correlation – In contrast, a negative relationship is when forex pairs move in the opposite direction. For example, CHF/JPY and USD/CAD pairs share a negative correlation.
What Determines the CAD/CHF Exchange Rate?
Several factors can impact the CAD/CHF rate valuation, including:
RBA & SNB Monetary Policies: Monetary policy for the franc is set by the Swiss National Bank (SNB), which accomplishes its mandate for currency stability by targeting interest rates. SNB can intervene both ways, either to soften or strengthen the currency. Being a reserve currency, it carries a safe haven status which is making currency too strong. Therefore, the SNB is struggling to make it weaker for years now.
On the flip side, the Australian monetary policy is set by the Reserve Bank of Australia (RBA) which is mandated to keep the currency stable, which it does by setting a target of 2-3% inflation.
Economic Events: The movement in the Swiss Franc and Australian economic events determine the exchange rates. Top of the line economic events includes GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data increases the demand for related currency and impacts the value of either the Australian Dollar or the Swiss Franc, causing fluctuations in the CAD/CHF exchange rate.
Major Economic Events:
Gross Domestic Product – the Gross domestic product is the central measure of economic growth in the region.
Employment Change – Both of the currencies are sensitive to changes in employment, as slacks in the labor market cause a drop in Inflation rates.
Consumer Price Index – Since one of the goals of the RBA and RBNZ is to maintain price stability, they keep an eye on inflation indicators such as the CPI. If the annual CPI deviates from the central bank’s target, the RBA could make use of its monetary policy tools to keep inflation in check.
The balance of Trade – Australia and Canada have an extremely robust trade sector, so currency traders and bank officials alike tend to watch changes in the country’s export and import levels.
Political announcements & natural disasters – Besides the scheduled economic events, the political elections, new systems, wars, terrorist incidents, and natural calamities, etc. can all cause severe variations within the CAD/CHF.
Standard lot Size: 100,000
Mini lot size: 1000
One pip in decimals 0.0001
Pip Value: $10.01