8 Apr 2015
FX reserves suggest a possible CHF15bn intervention by SNB – Nomura
FXStreet (Barcelona) - Global FX Strategists at Nomura explain that FX intervention speculation might increase if EUR/CHF remains below 1.05, with FX reserves that suggesting a possible CHF 15bn intervention by the SNB in March.
Key Quotes
“SNB FX reserves for March were CHF522.3bn, the largest amount ever. This represents an increase of CHF13bn from the end-February number at CHF509.3bn (the estimated amount of intervention was -CHF5.3bn in February).”
“The appreciation of CHF in March was not extreme and was quite mixed. CHF strengthened by around 2.3% versus EUR but weakened by 1.9% versus USD, so it was not a uniform depreciation of CHF and therefore the valuation effect cannot explain the increase in FX reserves.”
“When adjusting for the FX valuation effect using the SNB’s reserve breakdown by currencies, this amounts to a possible intervention of CHF15.6bn in March which is not within the typical valuation effect margin of error that we are used to.”
“The fact that EUR/CHF undercut 1.05 towards the end of the month may have spurred the SNB to take some action, but that is pure speculation at this point as the SNB’s communication is limited on the matter.”
“SNB officials have repeated that the Bank can intervene in the FX market when necessary, but they have not specified any level to protect.”
“In addition, the signals from sight deposits were limited, while deposits increased during the week ending 27 March when EUR/CHF depreciation accelerated on 24 March."
“We still think the SNB will likely ease monetary policy further, but only when CHF appreciation pressure intensifies further.”
“The IMF recently advised in its Article IV presentation that monetary easing could perhaps be achieved via a programme of pre-announced asset purchases, but the SNB may still be in a “wait and see” frame of mind.”
“Nonetheless, this number will likely revive market concerns about SNB intervention when EUR/CHF is below 1.05, which could limit downside risk for EUR/CHF in the near term.”
Key Quotes
“SNB FX reserves for March were CHF522.3bn, the largest amount ever. This represents an increase of CHF13bn from the end-February number at CHF509.3bn (the estimated amount of intervention was -CHF5.3bn in February).”
“The appreciation of CHF in March was not extreme and was quite mixed. CHF strengthened by around 2.3% versus EUR but weakened by 1.9% versus USD, so it was not a uniform depreciation of CHF and therefore the valuation effect cannot explain the increase in FX reserves.”
“When adjusting for the FX valuation effect using the SNB’s reserve breakdown by currencies, this amounts to a possible intervention of CHF15.6bn in March which is not within the typical valuation effect margin of error that we are used to.”
“The fact that EUR/CHF undercut 1.05 towards the end of the month may have spurred the SNB to take some action, but that is pure speculation at this point as the SNB’s communication is limited on the matter.”
“SNB officials have repeated that the Bank can intervene in the FX market when necessary, but they have not specified any level to protect.”
“In addition, the signals from sight deposits were limited, while deposits increased during the week ending 27 March when EUR/CHF depreciation accelerated on 24 March."
“We still think the SNB will likely ease monetary policy further, but only when CHF appreciation pressure intensifies further.”
“The IMF recently advised in its Article IV presentation that monetary easing could perhaps be achieved via a programme of pre-announced asset purchases, but the SNB may still be in a “wait and see” frame of mind.”
“Nonetheless, this number will likely revive market concerns about SNB intervention when EUR/CHF is below 1.05, which could limit downside risk for EUR/CHF in the near term.”