Swiss Franc: Growing role as funding currency – ING

Chris Turner at ING highlights low volatility weighing on the Swiss Franc (CHF) and Japanese Yen (JPY), with investors increasingly favouring franc funding to avoid potential Yen intervention. Short CHF/JPY is seen as a carry-positive way to express a Yen view. For EUR/CHF, a move toward 0.95 likely needs higher Oil prices and broadly higher rates, given the Swiss National Bank's (SNB) anchored zero-rate stance.

Franc funding and CHF/JPY carry appeal

"Low volatility is continuing to weigh on key funding currencies such as the Japanese yen and the Swiss franc. While the yen may be preferred as a funding currency because of its deeper liquidity pools, we think investors will increasingly turn to franc funding – not only for cheaper borrowing costs but also to avoid the risk of sudden yen buying intervention from Tokyo and Washington."

"And if investors do believe intervention is going to be effective, short CHF/JPY positions will become increasingly popular. This is not only because short CHF/JPY is one of the few ways to express a carry-positive yen view, but because the two currencies have similar investment characteristics."

"As to EUR/CHF, a break towards 0.95 probably requires higher oil prices and higher interest rates across the board, where the Swiss National Bank’s anchored zero rate policy leads to franc underperformance."