CHF/CAD

Currencies // Developed Markets

• Background

  Canada’s local currency is the Canadian dollar (CAD), which is one of the top ten most traded currencies on the global foreign exchange markets. It is also what is known as a reserve currency. This means that a number of central banks keep Canadian dollars in their foreign exchange reserves. Since over 80% of Canada's exports go to the US, and over 50% of imports into Canada come from the US, Canadians are mainly interested in the value of their currency against the US dollar. Although domestic concerns arise when the Canadian dollar trades much lower than its US counterpart, there is also concern among exporters when the Canadian dollar appreciates too quickly. The Swiss franc (CHF) is the currency of Switzerland and is one of the top ten traded currencies in the world. It has traditionally been seen as a safe haven currency with virtually zero inflation and a legal requirement that a minimum of 40% is backed by gold reserves. This requirement was abolished in 2000 and since then Swiss gold reserves have dwindled to around 20%. Canada is a net exporter of oil, which means that the Canadian dollar is one of the currencies affected by the ups and downs in oil prices. The Canadian dollar is considered a play on not only oil prices but other commodities as well, due to its heavy reliance on the export of its mineral resources. Switzerland is completely landlocked and surrounded on all sides with few natural resources of its own. The economy is very sensitive to energy price fluctuations and the country is a net importer of oil and petroleum. Switzerland’s banking system has been able to develop and thrive because the Swiss government has maintained neutrality through both world wars, is not a member of the EU, and was not even a member of the UN until 2002. One third of all funds held outside their country of origin are kept in Switzerland. With Canadian interest rates high relative to global interest rates over the past 20 years, the Canadian dollar has also attracted a lot of hot money in the form of carry trades. The Bank of Canada is the arbiter of interest rate policy in Canada, and is charged with the oversight of the stability of the currency of Canada, and the regulation of the financial system. The Swiss National Bank is responsible for the oversight of the Swiss economy and monetary policy. Its primary goal is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth.

• Influencing Factors

  Factors affecting the value of the Swiss franc are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP. The value of its currency is also affected by the price of coal and oil and other commodities like gold as well as base metals and agriculture prices. Factors affecting the value of the currency are economic indicators including the level of interest rates, trade balance, unemployment, price inflation and GDP.