No Change in CHF Stance from SNB
FX markets remain driven by headline risk with talks ongoing in Greece. There were few major developments to hit the newswires however and it took a weak German industrial production print (which fell by 2.9%) to push the euro lower. Elsewhere, SNB Chief Thomas Jordan verbally defended the SNB’s 1.20 floor when he gave a speech to the Swiss-American Chamber of Commerce. EURCHF rallied 20 pips into the meeting, as the usual speculation of a EURCHF floor rise circulated around markets, but Jordan barely changed his line from a recent FT interview. He said the SNB is firmly committed to the 1.20 EURCHF floor, can buy unlimited quantities of foreign currency and will take additional steps if warranted. AUD was the stand-out performer overnight in Asia, breaking through 1.08 as the RBA surprised investors and left its cash rate on hold at 4.25%.. There was a unanimous consensus for a 25bp cut so the move was very surprising. The board noted that policy was appropriate “for the moment”. This suggests the bank still has an easing bias and will “adjust the cash rate as necessary to foster sustainable growth and low inflation”. Our Australian economists continue to see a modest trimming of the cash rate over the coming months given the continued uncertainty around Greece, mixed domestic data and the high AUD. The currency is now at stretched levels and we would look to fade any move higher from here; in fact, on Monday we entered a trade recommendation to go short AUD via a 3m AUD put / USD call option, taking advantage of the recent decline in volatility. Fed Chairman Bernanke’s testimony to the Senate Budget Committee should not differ from his House testimony, though a more upbeat tone can be expected in the wake of the latest unemployment report. Overnight EURUSD traded 1.3089-1.3168 and USDJPY 76.50-76.79.
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UBS Investment Bank