Weakening of the CAD against the CHF

Summary:

On December 16, 2024, the CAD/CHF exchange rate was trading around 0.62627, down slightly by 0.06% from the previous session. This weakness reflects the impact of macroeconomic factors, including the Bank of Canada's (BoC) interest rate cut decision and the Swiss National Bank's (SNB) monetary policy adjustment...

SELL CADCHF

EXP

EXPIRED

0.62600

Entry Price

0.62200

0.63000

0.56936 +0.00061 +0.11%

Pips

EXPIRED

0.62200

0.62773

Exit Price

0.62600

Entry Price

0.63000

The BoC has just cut its interest rate to 3.25%, marking the second consecutive 50 basis point cut this year, in response to slowing economic growth and stable inflation near its 2% target. Meanwhile, the SNB also cut its interest rate to 0.50% on December 12 to support the domestic economy amid weak growth and deflationary pressures.

Additionally, oil prices – an important factor affecting the CAD as Canada is a major oil exporter – have risen slightly over the past week. However, the recovery in oil prices was not enough to offset the pressure from the BoC’s loose monetary policy, leading to a weakening of the CAD against the CHF.

The BoC’s decision to cut interest rates aggressively was prompted by recent weak economic data. GDP growth in the third quarter came in at just 1.2%, below the initial forecast of 1.5%, while the unemployment rate rose to a three-year high of 6.8%. This forced the BoC to act quickly to stimulate the economy.

On the other hand, the SNB is also facing similar pressure as Swiss GDP growth this year is forecast to be only 1.2%, below the long-term average of 1.8%. However, the SNB has an advantage thanks to the traditional strength of the CHF as a safe haven asset, especially in the context of geopolitical tensions in the Middle East and Ukraine that have not yet cooled down.

The difference in monetary policy between these two central banks has created downward pressure on the CAD/CHF exchange rate.

Market psychology

Current investor sentiment reflects clear concerns about the global economic outlook. The BoC’s continued rate cuts have dented the attractiveness of the CAD to international investors. At the same time, the CHF – considered a safe haven – is being supported by the market’s defensive sentiment against global geopolitical and economic risks.

Recent trading data shows that the majority of investors are long on CAD/CHF (84%), but the exchange rate is trending lower. This shows a discrepancy between market expectations and actual performance, reflecting uncertainty in investor sentiment. The Stochastic indicator on the technical chart also shows a strong sell signal as the indicator is in overbought territory.

Technical analysis

On the 15-minute (M15) chart, CAD/CHF is hovering below the Ichimoku cloud – a bearish signal that suggests the downtrend could continue in the short term. Bollinger Bands indicate that the price is near the middle band, with strong volatility as the price approaches the lower band at the support level of 0.6260.

The Stochastic indicator (5,3,3) has crossed below the signal line, entering the overbought zone, signaling a possible short-term correction. If the price breaks the important support level at 0.6260, the next target could be the 0.6220 zone. Conversely, if the price rebounds from this support zone, the nearest resistance will be at 0.6340.

In the additional Bollinger Bands chart (second image), it can be seen that the price has hit a low at the sixth period and is recovering slightly towards the middle band. However, the Bollinger Bands are still widening – a sign that high volatility is still possible.

Overall, the CAD/CHF downtrend could continue in the short term if macro factors do not change significantly. Investors should pay attention to upcoming inflation data from both Canada and Switzerland to assess the possibility of further monetary policy adjustments.

If the BoC continues to cut rates at a faster pace than expected or if oil prices fail to recover more strongly, the CAD will continue to face downward pressure against the CHF. Conversely, if the SNB decides to ease monetary policy further next year – as some economists predict – the CHF could lose some of its current strength.

Trading Recommendations

The CAD/CHF exchange rate is currently being influenced by both technical and fundamental analysis with a bias towards further downside in the short term. Investors should closely monitor key support and resistance levels along with the latest economic news to make appropriate trading decisions.Trading Recommendations:

Entry: If the rate breaks the support level at 0.6260.

Take Profit: At price zone 0.6220.

Stop Loss: Above the important resistance level at 0.6300.

The market remains volatile and unpredictable; therefore, strict risk management is essential to protect investment capital during this period.

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