The Swiss Franc (CHF)

Switzerland is the world's 19th largest economy with a gross domestic product (GDP) of $367 billion. It has a population of 7 million people. Yet it is highly advanced in technology and banking. The country is also the world's fourth largest official holder of gold.

Switzerland is primarily a service-oriented economy, which accounts for 73 percent of GDP.

Switzerland holds a unique position as the world's largest destination for offshore capital, which is estimated at $2 trillion. Its safe haven status and renowned confidentiality drive capital to the economy during times of global risk aversion.

Exports

Export markets are very important to the value of the Swiss Franc (CHF). A strong CHF will reduce the number of exports. A weak CHF will boost exports, which could contribute to a strong stock market.

Switzerland has five major export markets:

• European Union
• Germany
• United States
• France
• Italy

Imports

A strong CHF will boost imports because it makes foreign goods cheaper to CHF holders. A weak CHF will reduce imports, but boost exports.

Switzerland has five major import sources:

• European Union
• Germany
• Italy
• France
• The Netherlands

The Swiss National Bank (SNB) is the central bank of Switzerland. It is an independent committee of three persons who are responsible for determining monetary policy.

The SNB reviews monetary policy every quarter and decisions can be announced at any time. The primary goal of the SNB is to keep inflation below 2 percent per year.

The SNB reported that if inflation rises above the 2 percent threshold, the bank is prepared to take steps to lower inflation. Its primary weapon against inflation is raising interest rates.

The SNB favors a weak CHF favoring imports, particularly during times of global risk aversion.

The following characteristics are important to know about the CHF as they affect the demand for the currency:

• The CHF holds safe haven status because of the secrecy in the banking system.
• The CHF moves primarily from external events, which is very different from the USD, Euro, and Pound.
• The CHF is closely linked to gold. The CHF has an 80 positive correlation to the movement of gold.
• Like the GBP, the CHF is used as the lending currency in carry trades.
• The EUR/CHF is the most commonly traded currency for traders who focus on the CHF. The EUR/USD has low liquidity, but high volatility.

Important economic indicators that directly affect the value of the CHF are (in order of importance):

• KoF Leading Indicators
• Consumer Price Index
• Gross Domestic Product
• Balance of Payments
• Production Index (Industrial Production)

Remember to look for non-Swiss events to move the CHF, which is very sensitive to economic data from Germany. Changes in the price of gold will also move this currency.