How to Trade the AUD/CHF FX Pair: AUDCHF Trading Basics

The AUD/CHF currency pair represents a unique juxtaposition of the Australian dollar (AUD) and the Swiss franc (CHF), reflecting the economic dynamics of two very different regions. Trading this pair involves exchanging the AUD for the CHF in an attempt to speculate on fluctuations in their foreign exchange (forex) rate. This requires a nuanced understanding of the economic landscapes, historical developments, and market dynamics influencing these currencies.

In this guide, we’ll explore the history of the AUD/CHF exchange rate and examine the key factors driving its movements. We’ll also share how trading the AUD/CHF pair may offer opportunities for traders looking to diversify their portfolios and capitalise on market volatility.

Whether you're looking to understand the fundamental forces at play or seeking practical tips to enhance your trading strategy, this guide will provide a roadmap to mastering the AUD/CHF currency pair. Let’s take a closer look:

Key Takeaways:

• The AUD/CHF currency pair pairs the Australian dollar (AUD) with the Swiss franc (CHF), categorising it as a 'cross' or 'minor' forex (FX) pair. This designation stems from its composition of two major currencies not involving the US dollar.
• Interest rate decisions and monetary policies from the Reserve Bank of Australia (RBA) and the Swiss National Bank (SNB) are crucial in influencing the AUD/CHF exchange rate.
• Historical events like the 2008 global financial crisis and COVID-19 highlight the pair's potential for significant fluctuations, presenting both risks and opportunities for informed traders.

Understanding the AUD/CHF Currency Pair

The AUD/CHF is a currency pair representing the Australian dollar (AUD) against the Swiss franc (CHF). It is considered a 'cross' or 'minor' forex (FX) pair, as it consists of two major currencies that aren’t paired with the US dollar.

The exchange rate shows how many Swiss francs are required to buy one Australian dollar. For instance, if the AUD/CHF rate is 0.5900, it means that 1 Australian dollar is equivalent to 0.59 Swiss francs.

The AUD is also known as the Aussie dollar or simply the Aussie in the international currency market. It is the official currency of Australia and several South Pacific territories and as of 2022, is the sixth most traded currency globally. The Reserve Bank of Australia (RBA) oversees the AUD, managing the country's monetary policy and regulating the money supply.

The CHF is colloquially called the Swissie, and as of 2022, is the eighth most traded currency globally, valued for its stability and safe-haven status. It is managed by the Swiss National Bank (SNB) and serves as the official currency in Switzerland, Liechtenstein, and Campione d'Italia.

The History of the AUD/CHF Pair

The history of the Australian dollar (AUD) and Swiss franc (CHF) showcases these currencies’ significant transformations and roles in the global economy. Initially pegged to the British pound and later the US dollar, the AUD evolved into a free-floating currency influenced by commodity prices. Meanwhile, the CHF, a symbol of stability, has been a safe-haven currency, reflecting Switzerland's robust economy and political system.

AUD History

The AUD was adopted on February 14, 1966, replacing the Australian pound at a conversion rate of 2 AUD per Australian pound. Initially, the AUD was pegged to the British pound sterling at a rate of 2 AUD to one pound. In 1967, Australia shifted the peg from the British pound to the US dollar at a rate of 0.8929 AUD to one US dollar.

In 1976, the AUD moved to a trade-weighted index, allowing its value to fluctuate based on a basket of foreign currencies. A significant change came in 1983 when the AUD became a free-floating currency, meaning its value is determined by market forces without government intervention. This shift allowed the AUD to respond more dynamically to global economic conditions.

The RBA, wholly owned by the Australian government, manages the AUD, setting monetary policy and regulating the money supply.

Due to Australia's status as one of the world's leading exporters of coal and iron ore, its currency value is significantly influenced by commodity prices.

CHF History

Introduced in 1850, the Swiss franc is the official currency of Switzerland, Liechtenstein, and the Italian exclave of Campione d'Italia. It is the only remaining franc in Europe, with other countries that once used francs having adopted the euro. The SNB issues Swiss franc banknotes, ensuring the currency's stability.

The CHF is considered a safe-haven currency due to the perceived stability of the Swiss economy and political system and a relatively low inflation rate. Its popularity as a perennial safe-haven currency has led many governments and entities to hold the CHF as a buffer against market instability. This demand surged after the 2008 financial crisis, reflecting the CHF's role in times of political and economic turmoil, such as during the European debt crisis.

In September 2011, the SNB pegged the Swiss franc to the euro at a rate of 1.2000 CHF per euro to prevent excessive appreciation. However, in 2015, the SNB abandoned this peg and allowed the currency to float freely, causing significant disruption in the stock and FX markets.

Despite its status as a safe-haven currency, the Swiss franc is not a reserve currency, with international trade involving Switzerland typically settled in euros or US dollars.

AUD/CHF History

The AUD/CHF exchange rate has experienced significant fluctuations over the years, driven by various economic events and global market conditions. One of the notable low points was on October 19, 2008, when the exchange rate fell to 0.72. Earlier that year, the rate had traded between 0.91 and 1. This decline may be attributed to the aftermath of the 2008 global financial crisis, which led to a surge in demand for the Swiss franc as a safe-haven currency.

The global financial instability caused traders to flock to the franc, substantially increasing its value in the foreign exchange markets.

Another significant event impacting the AUD/CHF exchange rate occurred on January 18, 2015, when the rate dropped to 0.69, following a range of 0.79 to 0.87 during the fourth quarter of the previous year. This sharp decline was triggered by the Swiss National Bank's (SNB) decision to abandon the cap on the franc's value against the euro. The removal of this cap created substantial volatility in the currency markets.

The onset of the COVID-19 pandemic led to another significant drop in the AUD/CHF exchange rate, reaching a low of 0.57 on March 15, 2020. In the months leading up to this, the rate had traded between 0.64 and 0.67. The pandemic caused widespread economic uncertainty, prompting traders to exchange billions of dollars, euros, and yen for Swiss francs.

The AUD/CHF exchange rate recovered to 0.72 on March 7, 2021, but subsequently experienced an overall decline with intermittent spikes. As of June 2, 2024, the rate is around 0.58. The interplay of these factors highlights the franc's enduring appeal in times of economic uncertainty and its impact on the AUD/CHF exchange rate over the years.

What Influences the Exchange Rate of AUD/CHF

The AUD/CHF exchange rate is influenced by various factors, with the primary drivers being the demand and supply of Australian dollars and Swiss francs in the FX market. These factors encompass economic conditions, market sentiment, and global economic events, all of which may cause fluctuations in the exchange rate. Understanding these elements is crucial for traders looking to navigate the complexities of the AUD/CHF pair.

Commodity Prices

Australia is a leading exporter of iron ore and coal, making the AUD highly sensitive to commodity prices. Rising commodity prices typically boost the Australian economy and the value of the AUD. Consequently, any significant changes in the global commodity markets may directly impact the AUD/CHF exchange rate.

Interest Rate Differentials

Interest rate differentials between Australia and Switzerland play a crucial role in shaping the AUD/CHF exchange rate. Decisions by the RBA and the SNB regarding monetary policy significantly impact these rates. Higher domestic interest rates attract foreign capital, thereby increasing demand for the currency, while lower rates have the opposite effect.

Monetary Policy & Central Banking Policy

Monetary policy decisions by central banks such as the RBA and SNB are pivotal in influencing the AUD/CHF exchange rate. For instance, in 2015, the SNB's decision to abandon its peg to the euro caused significant turmoil in the FX markets. Such policy shifts may lead to drastic changes in currency values and affect global trading conditions.

Terms of Trade

Terms of trade are closely linked to the value of the Australian dollar, measuring the ratio of export prices to import prices. An improvement in the terms of trade, often driven by higher commodity prices, leads to an appreciation of the AUD. Conversely, a decline in the terms of trade results in a weaker AUD.

Safe-Haven Status

The Swiss franc’s status as a safe-haven currency also affects the AUD/CHF exchange rate. This status stems from Switzerland's stable economy, political system, and low inflation rate, making the CHF a preferred asset during times of global market turmoil. This inherent stability attracts traders to the Swiss franc, influencing its value relative to the Australian dollar.

Ways to Trade the AUD/CHF Currency Pair

One way to trade the AUD/CHF currency pair is through spot FX trading, which involves purchasing or selling the currency pair for immediate delivery on a specified date. Other methods include trading currency futures, which are contracts to buy or sell the AUD/CHF pair at a predetermined price on a future date, and currency options, which give the buyer the right, but not the obligation, to buy or sell the currency pair at a specified exchange rate on or before a set date.

Additionally, currency exchange-traded funds (ETFs) offer pooled capital that provides exposure to FX markets through a diversified portfolio of securities.

A popular way to trade the AUD/CHF currency pair is through contracts for difference (CFDs), which enable traders to speculate on the price movements without owning the actual currency. CFD trading offers flexibility and the opportunity to speculate on both rising and falling markets, making it an attractive option for many traders. However, it’s important to remember that while there is the potential for profit, there is also the risk of significant loss.

How to Trade AUD/CHF CFDs

A CFD is an agreement between a buyer and a seller to exchange the difference between the current price of an underlying asset and its price when the contract is closed. CFDs are financial derivatives, meaning their value is derived from an underlying asset, group of assets, or benchmark.

These contracts allow you to speculate on the price movements of the AUD/CHF pair without owning the actual currencies.

The unit of measurement for changes in value between two currencies is called a pip, and your profit or loss will depend on how many pips the market moves in either direction. For a Buy position, if the closing price is higher than the opening price, the CFD provider pays the buyer the difference, resulting in a profit for the buyer. Conversely, if the closing price is lower, the buyer pays the provider the difference, resulting in a loss.

CFD trading involves leverage, allowing you to deposit only a percentage of the total value of the asset to open a position, known as the margin. To open and maintain a CFD position, you must meet specific initial and maintenance margin levels, which vary for each financial instrument.

While leverage can magnify potential opportunities, it also increases potential losses, so it’s important to manage risk carefully.

Trading Strategies for AUD/CHF

In trading, a strategy is a planned approach designed to help make better decisions and maximise earning potential when buying or selling financial products like CFDs on forex pairs. Strategies can be customised to individual preferences and often work best when used in conjunction with other strategies. When choosing a strategy, it's important to consider personal goals, risk appetite, experience, and trading preferences.

Day Trading

Day trading involves opening Buy/Sell positions on the AUD/CHF pair and closing them before the market closes on the same day. This strategy requires quick responses to market fluctuations and often involves opening multiple smaller trades with stop orders to lock in profits or manage losses. Due to the volatility of financial markets, day trading can offer opportunities for traders, but it also carries significant risks.

Swing Trading

Swing trading uses technical analysis to identify market trends and patterns to time entry and exit points. The goal is to catch upward or downward trends, referred to as swings, and ride these movements for short to medium-term gains. By leveraging these brief bursts of market activity, swing traders may capitalise from the natural ebb and flow of the market. However, like all forex trading strategies, this approach carries the potential for both profit and loss.

Risk Management Tools for AUD/CHF

Risk management is crucial when trading AUD/CHF due to the FX market's fast-paced and volatile nature. Traders can mitigate risk by using various risk management tools, such as Stop-Loss, Trailing Stop, Guaranteed Stop, and Take-Profit orders. These tools may help limit potential losses and lock in profits, providing a safety net in volatile market conditions.

Another essential risk management strategy is staying informed about the FX market by studying how it works and keeping up with market news and events that could affect trading and create volatility. Knowledge of upcoming economic reports, central bank meetings, and geopolitical events can help traders make informed decisions and avoid unexpected market movements.

Position sizing is another important aspect of risk management, which entails sizing trading positions based on the overall trading account size and individual risk tolerance. Correctly allocating capital for each trade may reduce the impact of potential losses. This method may ensure that no single trade can significantly harm the overall trading account, allowing for a more controlled and disciplined trading approach.

AUD/CHF Trading Hours

The FX market, including the AUD/CHF pair, operates 24 hours a day during weekdays, closing only on weekends. This continuous operation across multiple time zones allows traders to open and close positions at almost any time except for the weekend break. However, trading volume and volatility can fluctuate significantly within each 24-hour cycle, with spreads widening during quieter periods and narrowing during more active periods.

The best times to trade the Swiss franc often coincide with the release of economic data and during open trading hours. The SNB meets four times a year to update its monetary policy, with statements typically released at 3:30 a.m. Eastern Time (ET). CHF crosses can also be influenced by significant economic and political macro events.

In Australia, the Reserve Bank Board is responsible for formulating monetary policy, with meetings scheduled eight times a year following key economic data releases on inflation and economic activity. These meeting dates are known in advance, and the Board's decisions are communicated publicly shortly after the meetings conclude. During these periods, the AUD may experience increased volatility, creating potential trading opportunities.

It's important to note that trading hours on the Plus500 platform may not always align perfectly with the timing of major economic releases or news events. Therefore, traders should be aware of the specific times when significant data and announcements are expected to optimise their trading strategies.

Conclusion: Mastering AUD/CHF Forex Pair Trading

The AUD/CHF currency pair offers traders a blend of economic forces from Australia's commodity-centric market and Switzerland's robust financial stability.

Navigating the complexities of this pair requires a thorough understanding of its historical background and the influences of key factors such as commodity prices, central bank policies, and geopolitical stability. The interplay between Australia's reliance on global commodities and Switzerland's safe-haven currency status provides unique trading opportunities amidst varying market conditions.

By integrating solid risk management strategies and applying effective analysis, traders can adeptly manage the inherent volatility of the AUD/CHF pair, enabling informed and strategic trading decisions in this dynamic FX market.

If trading the AUD/CHF CFDs interests you, you can start trading AUD/CHF CFDs with Plus500.

AUD/CHF FAQs

How does commodity pricing impact the AUD/CHF exchange rate?

Australia's economy relies heavily on commodities like coal and iron ore. Changes in global commodity prices may directly affect the AUD's value, influencing the AUD/CHF exchange rate as traders react to shifts in demand for these exports.

What historical events have notably influenced the AUD/CHF exchange rate?

Key historical events affecting the AUD/CHF exchange rate include the 2008 financial crisis and the 2015 SNB decision to abandon the euro peg. These events led to significant currency fluctuations due to shifts in market sentiment and economic stability.

What are some common methods to trade the AUD/CHF currency pair?

Traders commonly engage in spot FX trading, currency futures, and contracts for difference (CFDs) to speculate on the AUD/CHF exchange rate. Each method offers different benefits and risks, allowing traders to choose based on their strategy and market outlook.