ECB Actions Means CHF Likely to Remain Good Carry Trade Candidate

Will the European Central Banks' goal of re-firing the Eurozone economy put the Swiss National Bank and the peg on CHF to the test?

MahiFX Market Commentary

The determination of the European Central Bank to rekindle some inflation and growth in the Eurozone and to weaken the Euro presented an opportunity for the Swiss to reaffirm their cap on EUR/CHF making their currency a good ongoing carry trade candidate.

The Swiss National Bank said it will maintain the EUR/CHF cap at 1.20 into 2016 – a commitment it first made nearly 3 years ago when the currency was soaring as a safe haven.

For carry traders this commitment is useful as it dispels some speculation that the SNB was considering relinquishing the peg sometime in 2015.

The benefit of using CHF for carry trades are its very low rates of interest. This is ideal for funding purchases of higher yielding currencies such as NZD. However, unlike with the EUR, CHF comes with a solid commitment by the central bank to do whatever takes to stop the currency from appreciating too much.