CAD/CHF – How to Trade the Canadian Dollar vs the Swiss Franc

CAD/CHF may not be one of the mainstream forex pairs, but it still has several desirable characteristics. For one, CAD/CHF interests traders because both CAD and EUR are two major currencies in the forex market. It’s also not a bad thing that the pair manages to retain quite a bit of liquidity without excessive volatility. 

To trade CAD/CHF:

  • Carry out analysis on CAD/CHF to forecast the pair’s future price movements.
  • Develop a trading strategy complete with rules for entering and exiting trades.
  • Choose a broker and create an account.
  • Open a trade according to your analysis.
  • Monitor the trade and close your position.

The CAD/CHF pair merges one growth-linked, higher-yielding currency with a safety-geared, lower-yielding one. Perhaps it’s then unsurprising that a lot of traders turn to the pair when they are looking for a notable carry trade vehicle that can help them succeed in the market. Here’s a comprehensive view of the pair.

Currency Pair Chart and Profile

CAD/CHF cross currency pair represents the Canadian dollar and the Swiss franc. The pair is also commonly known among traders as the Loonie Swissy.

The economies behind CAD/CHF

Canada is ranked 10th in terms of GDP, making it the world’s 10th largest economy. As one of the world’s largest gold and oil producers, Canada is considered a resource country. As such, the Canadian dollar is considered a commodity currency and it is issued and managed by Canada’s central bank, The Bank of Canada (BoC).

Switzerland comes in at number 20 in terms of GDP ranking. It has a growing tourism industry and it boasts of a long history in pharmaceuticals and the clock and watch industry. Additionally, Switzerland is well-known for its strong financial sector which gives the Swiss franc its great stability and low interest rates. The Swiss franc is issued solely by Switzerland’s central bank, the Swiss National Bank (SNB).

What influences the movement of CAD/CHF?

The CAD/CHF pair is usually affected by the different factors that influence the price movement of the Canadian dollar and the Swiss franc.

Gold prices

One of the reasons why Switzerland has a great financial sector is that a quarter of the country’s cash is backed by gold reserves. In fact, the Swiss franc has an 80% correlation with the price of gold. As a result, the price of CAD/CHF tends to move with changes in gold prices.

Developments in the Eurozone and the U.S.

Switzerland has significant reliance on exports to the U.S. and the Eurozone, therefore, it’s affected by economic developments in these regions. Canada’s economy is also affected by U.S. economic data. This is due to the U.S. being Canada’s main trade partner and the two country’s proximity. All these factors mean that poor economic developments in the Eurozone or the U.S. will likely move CAD/CHF prices.

Is CAD/CHF an exotic pair?

An exotic pair includes a major currency and a currency from an emerging or developing economy. The CAD/CHF cross includes two major pairs, therefore, it’s not one of the exotic currency pairs. CAD/CHF is a minor pair.

Pros of trading CAD/CHF

Trading the CAD/CHF pair has several advantages.

  • As a minor pair, CAD/CHF can provide low-risk, high-reward setups that may not be present in the major currency pairs. CAD/CHF can essentially provide excellent trading opportunities in the competitive forex market.
  • CAD/CHF can be a good pair for medium-term or long-term traders because it tends to provide high probability trade setups that play out over the long-term.
  • The CAD/CHF pair may not have the liquidity of major currency pairs but it still retains significant trading volumes that make the trading worthwhile.
  • The relationship between CAD and CHF means the pair provides a great opportunity to capitalize on the benefits of carry trading.

Cons of trading CAD/CHF

Even with the opportunities CAD/CHF presents, it’s a good idea to consider some of the main downsides of trading the pair.

  • Because CAD/CHF is more ideal for longer-term trading, it may be less suitable for the day trader.
  • Although CAD/CHF consists of two major pairs, it’s not a major currency pair. This means that, in general, the pair is less liquid than the major currency pairs and this can result in lower trading volumes.
  • Since CAD/CHF tends to have lower liquidity, there can be an occasional delay in getting market prices. Depending on how well your position is doing, a delay can significantly reduce your profits or increase your losses.
  • Depending on the session in which you trade, CAD/CHF may attract higher spreads. For example, CAD/CHF tends to have low liquidity during the early Asian session hours. If you choose to trade the pair during this time, you may incur larger than normal spreads.

The Best Time to Trade CAD/CHF

Most Eurozone and Switzerland economic data releases happen between 6 am and 9 am GMT during the European session. Trading CHF crosses is very popular around this time. On the other hand, U.S. economic data releases come between 12.30 pm and 2 pm GMT during the U.S. session. Peak CAD movement occurs during this session which also generates quite a lot of CHF trading.

The U.S. session will likely present the optimum CAD/CHF trading opportunities as both currencies see a lot of movement during this session. However, you can also take advantage of the four-hour overlap between the Europe and U.S. sessions which occurs from 12 pm to 5 pm GMT.

The Best Strategies for Trading CAD/CHF

Some of the best strategies for trading the CAD/CHF cross include:

Range trading

With range trading, you identify support and resistance areas, then you either buy at the support or sell at the resistance. This trading strategy works quite well for CAD/CHF which tends to move sideways between a range of identified support and resistance levels. Here’s an example.

In this example, you would start monitoring price movements closely once the price action approaches the support and resistance levels.

The biggest risk with range trading is the potential breakout of support and resistance. For example, CAD/CHF is sometimes vulnerable to breakout as a result of changing fundamentals. It’s prudent to know how to set orders to minimize risk in case of a breakout.

Position trading

Because CAD/CHF has a tendency to provide low-risk, high-reward setups over the longer-term, you can opt for position trading. For example, in the example above, the range is obvious over several months and so a longer-term view of the market will likely help you create a more robust trading strategy.

Note: Unlike trend trending which focuses mainly on technical analysis, position trading is mainly based on the fundamental analysis of the factors that move a currency pair.

Currency carry trading

Currency carry trading is based on the concept of buying low and selling high. For instance, the Canadian dollar has higher interest rates compared to the Swiss franc which is known for its low interest rates. When using the currency carry trade strategy, you essentially attempt to capture the differences between the rates. This strategy can offer substantial gains when you consider the effect of using leverage.

The best time to enter into a carry trade is usually when central banks are raising or thinking of raising interest rates. Currency carry trades can also work when CAD/CHF is experiencing some volatility.

Note: Interest rate reductions tend to reduce demand for a currency and make it difficult to sell off the currency. This means that carry trades during periods of rate reductions won’t offer substantial gains.

Correlated Instruments or Currency Pairs

The Swiss franc is heavily influenced by the value of the Euro. Similarly, the Canadian dollar is linked to the U.S. dollar. Consequently, CAD/CHF is closely correlated with EUR/USD. CAD/CHF can also be affected by cross pairs such as EUR/CHF due to the strong connection with the Euro.

Correlation of CAD/CHF with other instruments, commodities, or indices

Since Canada is one of the world’s major oil producers, the value of crude oil prices has a strong correlation with the value of the Canadian dollar. Analyzing oil price behavior can help a lot when you are trading the CAD/CHF. Another important correlation is that between the Swiss franc and gold price. The CHF tends to increase as gold prices rise and decrease as gold prices fall.

Related Questions

The following are some of the questions related to the CAD/CHF pair.

What is the CAD/CHF pip value?

Remember that pip values are fixed when the currency an account is funded in is listed as the quote currency. So, for example, if you had a CAD account, the pip value for any other currency and CAD (XXX/CAD) would be CAD$10 for a standard lot.

However, let’s say that you want the pip value when CAD is the base currency as is the case with CAD/CHF. To get the pip value, divide the fixed pip rate by the exchange rate. For example, if the exchange rate for CAD/CHF is 0.6945, one pip is worth CAD$14.39 for a standard lot.

Is CHF stronger than USD?

One Swiss franc has been worth more than one U.S. dollar since October 2015.

Why is CHF a safe haven currency?

CHF is perceived as a safe-haven currency because Switzerland is seen as one of the most stable economies in the world due to its stable government and financial system. Many investors consider CHF as less risky relative to other currencies and so they use it as a backup during periods of economic uncertainty or geopolitical tensions.

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