Strong retail sales in August keep Aussie bullish

After trading in a narrow range of 0.7030 to 0.7510 for about two years, the AUD/CHF pair seems to be on the verge of breaking out of the upper band.

Ironically, the global economy is still in the recovery mode and the Swiss Franc, which is a safe haven currency, is invariably a must have asset in all the investors’ portfolio.

To understand whether the Aussie would head further north against the Franc, let us study the economic and political developments in the Euro zone and Australia.

At the end of the monetary policy meeting held on October 4, Philip Lowe, the governor of the Reserve Bank of Australia stated that the committee has decided to leave the record low benchmark interest rate of 1.5% unchanged. The decision was in line with the market’s expectations. The decline in the investment in the mining sector was offset by a buoyant housing market, a decline in the unemployment rate, and increase in the consumer spending.

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In August, according to the Australian Bureau of Statistics, the building approvals decreased 1.8%, compared to the 12% growth recorded in the previous month.

However, it was better than the analysts’ expectation of a 5.8% decline. The retail sales grew 0.4% m-o-m in August and topped the analysts’ expectation of 0.2% growth. The retail sales remained flat in July, compared to the earlier month.

In the case of Switzerland, the retail sales dipped 0.6% in August, compared to July and worse than the analysts’ expectation of a 0.4% decline. Similarly, on a y-o-y basis, the retail sales plunged 3%, compared to the market’s expectation of a 1.5% decline. There is also a perception in the market that the Swiss Franc is overvalued mainly due to the inflow of funds from investors who are looking for safe haven assets. The high exchange rate continues to deter exports. Thus, considering the fundamentals, we believe that the AUD/CHF pair will remain bullish in the weeks to come.

The chart shows that the AUD/CHF pair is moving within an ascending channel and uptrend is aided by an increase in the momentum. This indicates that the AUD/CHF currency pair will continue to rise further.

So, going long near 0.7400 with a stop loss order below 0.7320 may be the best option for a currency trader. The long position can be diluted at about 0.7680. In the same manner, to earn up to 90% return on the investment, a one touch call option can be traded by a binary options trader. The chosen contract should remain valid until the first week of November and have a target level of 0.7550 or lower.

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