Short AUD/CHF

Our Thesis

  • We have been voicing our views on the Australian dollar “AUD” for the last couple of months. For a primer, please check out our previous posts: The Aussie Dollar, In A Checkmate! and Australian Dollar – A Bearish Outlook But A Bullish Set-Up.
  • Protection is cheap:
    • Despite the most heightened uncertainties surrounding China, North Korea, Middle-East, Russia, Turkey, Trump, etc. protection is cheap.
    • Global markets are not prepared for a risk-off scenario.
  • In times of crises, during a risk-off mode, the US dollar, the Japanese Yen and the Swiss Franc are seen as currency safe-havens.
    • “Ranaldo and Söderlind (2010) showed that the yen and Swiss franc appreciated in a systematic way when risk peaked… De Bock and de Carvalho Filho (2013) found strong evidence for the same conclusion – returns on the yen and Swiss franc outperformed those of all other currencies when risk spiked.” – Adrian Jäggi, Martin Schlegel, Attilio Zanetti.
  • The Swiss National Bank’s (SNB) balance sheet size to GDP ratio is nearly 100%, higher than BOJ’s which is at 90% of Japan’s GDP.
    • We will not dare assume that the probability of a currency intervention by the SNB is zero but we do think that the bar for a new round of currency intervention is high considering SNB’s obese balance sheet.
  • China devaluation risks have disappeared only from the minds of traders.
    • Being short the Australian dollar against the Swiss Franc, in our view, is the best way to capture this risk premium.

Please click here to read the entire article.

Chinese Hard Landing

When we think of China, we think of it as a slowing giant that’s nearing its end instead of thinking of it as a giant that’s undergoing metamorphosis from its industrial form to its consumer form. Regardless of where you stand on China here’s an interesting paper published by the Banque De France that assesses the near term impact of of this transition.  Please click here for the paper: TOWARDS RECOUPLING