##{"id":58805,"date":"2011-09-07T12:07:15","date_gmt":"2011-09-07T02:07:15","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/09\/07\/csl-and-the-swiss-franc\/"},"modified":"2011-09-07T12:07:15","modified_gmt":"2011-09-07T02:07:15","slug":"csl-and-the-swiss-franc","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/09\/07\/csl-and-the-swiss-franc\/","title":{"rendered":"CSL And The Swiss Franc"},"content":{"rendered":"<p>\n\t&#8211;<strong> <span>SNB<\/span> caps the Swiss franc<br \/>\n\t&#8211; <span>CSL<\/span> exposed to USD\/<span>CHF<\/span><br \/>\n\t&#8211; AUD might find further support<\/strong><\/p>\n<p>\n\t<br \/>\n\tBy Greg Peel<\/p>\n<p>\n\tBack in 1978 the German economy was in a sorry state and funds were flowing steadily out of the German mark and into the safety of the Swiss franc. It was also a time anyone who was anyone, by whatever means, held a secret Swiss bank account, further increasing the popularity of the neutral country&#039;s currency. The subsequent strength in the <span>Swissy<\/span> forced Switzerland&#039;s central bank, the Swiss National Bank, to intervene to cap the currency and prevent the erosion of Switzerland&#039;s export industry, including tourism. Famously, the intervention was a disaster.<\/p>\n<p>\n\tIn short, the <span>SNB<\/span>, like King <span>Canute<\/span>, could not hold back the tide. The <span>Swissy<\/span> continued to rally eventually, the <span>SNB<\/span> lost a fortune, and when the currency did eventually subside inflation set in.<\/p>\n<p>\n\tIt is a lot easier to cap one&#039;s currency than defend it, given all one needs to do is print more of the stuff. But such intervention does not represent a currency peg per se, given the central bank&#039;s resolve can still be tested to breaking point by currency markets. And a debasement of a currency, via printing, must by definition lead to monetary inflation down the track as soon as the currency loses its appeal. One could buy gold as an alternative to printing money, but then it was only a couple of years ago the <span>SNB<\/span> was selling some of its substantial gold holdings. The rally in the gold price meant the bank&#039;s reserves were overweight in gold.<\/p>\n<p>\n\tCommentators have been drawing comparisons to 1978 for two years now, since once again the <span>SNB<\/span> began intervening in currency markets to keep a lid on the <span>Swissy&#039;s<\/span> rampant rise. The <span>Swissy<\/span> has become the paper currency safe haven of choice ever since European debt issues rendered the euro as no longer a safe diversification alternative to the US dollar, which was itself being debased by quantitative easing policy. In 2011 the <span>Swissy<\/span> has really run riot, marking new highs against the euro and the US dollar, and the <span>SNB<\/span> has been forced to act.<\/p>\n<p>\n\tTo date the <span>SNB<\/span> has set no target for its intervention, but last night it did. The central bank has vowed to cap the <span>EURCHF<\/span> against the euro at 1.20, and the announcement immediately saw the <span>Swissy<\/span> plunge 9% to the target (from EUR 1.12). The European Central Bank was quick to point out that the <span>SNB<\/span> was acting alone, albeit the intervention is to the benefit of the <span>ECB<\/span> as it will provide support for the euro in further times of stress (The <span>SNB<\/span> will sell <span>Swissy<\/span> to buy euro).<\/p>\n<p>\n\tTalk now is as to whether this time the intervention will actually work. The subsequent rallies in both the euro and the US dollar suggest the market is assuming such at present, but were the <span>eurozone<\/span> debt crisis to heighten significantly one again has an image of <span>Canute<\/span> wandering into the icy North Sea waters.<\/p>\n<p>\n\tIf it does work, it should be good news for Australian blood product company <span>CSL<\/span> ((<span>CSL<\/span>)). <span>CSL<\/span> is a global leader in its field and like every other Australian manufacturer has lately been fighting the strong Australian dollar. <span>CSL&#039;s<\/span> <span>FY11<\/span> earnings were up 14% in constant currency terms but exchange losses meant its reported profit was down 11%. Yet unlike most Australian manufacturers, <span>CSL<\/span> also suffered from the rise in the Swiss franc against the US dollar, which has been 20% since March.<\/p>\n<p>\n\tThis is because most of <span>CSL&#039;s<\/span> <span>immunoglobin<\/span> products are produced in Switzerland. If you&#039;re wondering why that&#039;s the case, note that Red Cross blood donation <span>centres<\/span> are now run by <span>CSL<\/span>.<\/p>\n<p>\n\tClearly a capped Swiss franc will prevent a further rise in the <span>Swissy<\/span> against the US dollar, and indeed it will take pressure off the US dollar index. This should mean less upward pressure on the Aussie as well, but then the exchange relationships are not quite so mathematically simple. Suffice to say <span>SNB<\/span> intervention is good news for <span>CSL<\/span> rather than bad, assuming the <span>Swissy<\/span> does not burst through the <span>SNB&#039;s<\/span> <span>defences<\/span>.<\/p>\n<p>\n\tThe other issue is that Swiss franc is simply another in the growing list of &ldquo;floating&rdquo; currencies now subject to central bank intervention one way or another. The US dollar is subject to quantitative easing and may be about to see more QE, the pound has been subject to QE ever since the <span>GFC<\/span>, the yen has also been subject to QE and the Bank of Japan has been forced to intervene directly, just as the <span>SNB<\/span> has, to cap the yen, particularly after the earthquake sparked rapid currency repatriation. The euro has been subject to its own variety of QE since the <span>GFC<\/span>, and more so lately, via <span>ECB<\/span> purchases of sovereign bonds. Brazil has been keeping a bit of a lid on the real lest its iron ore becomes too expensive for China. China, of course, pegs the <span>renminbi<\/span> in a range against the US dollar.<\/p>\n<p>\n\tThe bottom line is that while every politician and central banker in the world will espouse the economic virtues of a strong currency, that claim should carry the caveat &ldquo;but not too strong&rdquo;. What we currently have now is thus a &ldquo;race to the bottom&rdquo; between developed and developing nations to not have the currency that&#039;s too strong against the rest. Given exchange rates are a zero sum relationship, Newton&#039;s third law comes into play. No one can ever &ldquo;win&rdquo;.<\/p>\n<p>\n\t<span>ANZ<\/span> Bank suggests that now the <span>Swissy<\/span> can no longer be used as a safe haven (and we note the yen is similarly invalid, the euro a basket case and the greenback about to be debased once again one assumes), the safe haven currencies of choice will be the Asian currencies (ex-Japan) and the commodity currencies (ex-Brazil). The South African rand is a bit dodgy so that would seem to imply the Canadian dollar and <span>the&#8230;oh<\/span> no.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>CSL&#8217;s profits are undermined by a rising Swiss franc, so what are the implications of last night&#8217;s intervention announcement from the Swiss National Bank?<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[29,37],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58805"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58805"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58805\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58805"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58805"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58805"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}