Tomorrow sees the release of a data set that has a habit of moving CHF pairs: the Swiss monthly Balance of Trade. The trade balance is important for any currency. But, in the case of the Swiss, it gets extra attention because the SNB is not shy about supporting exports by affecting the exchange rate. In addition, trade accounts for over 40% of Switzerland’s economy.
Schedule and Expectations
The trade balance data is scheduled for release 08:00 CET (or 02:00 EST). This is the only important Swiss data coming out during the session. Regarding expectations, there somewhat of a broad range of forecasts. The most common number cited is a surplus of CHF3.1B, but some analysts are more pessimistically projecting just CHF1.1B.
The Markets
In either case, a number above CHF1.0B is still positive, coming in just under the bottom of the year’s trend between CHF1.2-1.3B. A result below that would likely be seen as negative. This would harken back to the beginning of last year, which had poor performance ahead of a slip in the value of the franc. The wide range of expectations among analysts shows that it’s unlikely the market has priced a particular figure in, which significantly reduces the chance of a “relief” move. The final quarter of the year saw a series of above-average trade surpluses. So, even coming in line with the worst expectations would mostly be a return to normal.
The Swiss National Bank
We all know that the SNB has been fretting over the strength of the franc for years, and a high trade surplus would put them more at ease. However, in the components section, we see that both elements have been rising, with exports simply outpacing imports. Should the economic situation outside Switzerland deteriorate, exports may not keep up with imports. This would lead to a sharp shift in the balance to a deficit. As an example, exports to the EU increased by just 0.2% last month, but imports rose 3.7%. With the U.S., on the other hand, the situation is reversed. Exports rose 4.5%, and imports declined by 8.4%.
Considerations
The USD/CHF is often the currency pair that forex traders focus on as a reference for the franc. It should be noted, however, that Switzerland’s largest trade partner is, effectively, the euro area. The EA is also the source for most of Switzerland’s capital inflows for the financial industry. Consequently, when the SNB is expressing concern about the strength of the franc, this should be understood in terms of its relationship to the euro. That also leads us to the second factor to consider: the euro area has recently had a lackluster economic performance. The largest member and trading partner for Switzerland, Germany, just barely escaped a technical recession in the last quarter. On the other hand, Swiss exporters are in the process of reorienting their sales to better markets. For example, at the end of January, Swatch reported a positive outlook for the year by announcing 1,700 new staff and targeting acquisition of market share in the U.S. and Japan. With Switzerland managing to escape continental economic doldrums and turning to faster-growing economies like the U.S., the gap between the euro and the franc is likely to widen.