This would naturally be disappointing for a trader holding AUD in terms of CHF, if one were seeking to exploit the currently positive risk sentiment. However, it would appear that the correlation between certain FX pairs and U.S. equity markets is perhaps starting to "break;" a topic I approached in a fairly recent article.
It made a certain degree of sense for certain FX crosses to return to their prevailing trading ranges (after the significant turbulence we saw in the first half of the year). Some fundamental factors supported this, such as improved terms of trade among certain countries (including Australia, at least relative to many other nations) while worsened terms of trade among others, as well as reduced interest rate spreads (eliminating carry-trade biases).
However, the upside for equities is theoretically limitless, while this is not the case for currencies (unless perhaps one is betting on a complete collapse of one currency in terms of another). Still, while we should not be surprised that certain pairs are breaking away from their recent synchrony with equities, the pause in AUD/CHF warrants another look.
Firstly, the U.S. dollar has been weak recently, giving up strength most notably to the euro, as USD has found reduced appeal given significant U.S. Federal Reserve intervention (including a drop in the short-term rate to the zero lower bound). The premium that FX markets have been willing to price into USD has fallen considerably, and USD remains even pricey to this day (something I covered in another article of mine) on the basis of purchasing power parity. This has been enabled by USD's world reserve currency status.


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