Trading News FXF Currency ETF- CHF Strengthen and Outlook

Trading News - Invesco CurrencyShares Swiss Franc Trust (FXF) has been demonstrating an impressive performance on the NYSEArca, backed by the Swiss franc's strength and the Swiss economy's growth. FXF, a single currency fund with a net asset value of $164.2 million, holds its principal investments in Swiss francs.

The ETF showed a commendable YTD daily total return of 6.49% and an annual report expense ratio of 0.40% as of July 2023. Performance data indicates a 1-year daily total return of 11.11%, affirming the promising outlook of this investment. In recent trading, the ETF closed at 102.77, a slight 0.11% uptick, demonstrating resilience amidst various market dynamics. The ETF's consistent performance is mirrored in the high trade volume, reaching 1,608,200 in October 2022.

The Swiss franc's standing as both a haven and a funding currency for carry trades plays a significant role in FXF's performance. Recently, the currency rallied as expectations built that Switzerland's interest-rate differential with the US would continue to narrow. The Swiss National Bank (SNB) raised rates by 250 basis points in the current tightening cycle to 1.75%, with indications of another hike in the pipeline. The bank also sold foreign currency to keep inflation in check.

Concurrent with its monetary policy, Switzerland's GDP growth has been sturdy, further supporting the franc's strength. In 2021, Switzerland's GDP stood at $800.64 billion, a notable 8.21% increase from 2020, demonstrating the country's resilience amidst global economic turmoil. The GDP growth rate for 2021 was also robust at 4.22%, a remarkable 6.6% rise from 2020. This steady economic growth, coupled with the SNB's monetary policies, has buoyed the Swiss franc and, by extension, FXF.

The Swiss economy also illustrated a robust GDP per capita growth, reaching $91,992 in 2021, a 7.4% increase from 2020, underscoring the nation's powerful economic performance and high living standards, further solidifying the position of the Swiss franc. This growth trajectory has also influenced Switzerland's economic growth, with the GDP at purchaser's prices steadily increasing.

The debt-to-GDP ratio for 2020 was 20.91%, a slight increase of 1.96% from 2019. Despite the small rise, Switzerland's debt-to-GDP ratio remains relatively low compared to other developed economies, indicating the nation's vital fiscal health, which augments the Swiss franc's strength.

In the first quarter of 2023, Switzerland's GDP increased by 0.5%, following zero growth in the fourth quarter of 2022. This growth further demonstrates the Swiss economy's resilience, despite global economic pressures and contributes to the strong performance of the Swiss franc.

Turning to currency pair dynamics, the USD/CHF pairing offers insight into the Swiss franc's strength. After a rebound last week, the bias stays mildly on the upside for 0.8818 support turned resistance. If the 0.8553 support holds, it suggests that there might be a slight retreat, but the overall risk remains mildly on the upside. Furthermore, the pair is at 0.8582, with the MACD indicating upward movement. A potential break in resistance could pave the way for a continued rally toward the 1.618 Fibonacci level at 0.8661.

The ETF's evolution has been intriguing over the past few years, showing periods of growth and retraction. The FXF ETF started 2023 at $95.44 and peaked at $103.84 in July, marking an increase of around 8.77%. The lowest it has stooped to was $88.08 in October 2022. It has been a roller-coaster ride, but the overall trend remains promising.

The FXF ETF belongs to Invesco, a reputable fund family with net assets at $164.2M as of July 2023. With an annual report expense ratio of 0.40%, below the category average of 0.43%, the fund appeals to those prioritizing lower costs in their investment strategies.

Diving deeper into its performance, the ETF has shown a 6.49% YTD daily total return, outperforming its category's average return. Additionally, it registered an 11.11% return over the past year, a 1.52% return over the past three years, and a 1.69% return over the past five years. Despite the slight negative return over the past decade (-0.15%), the fund's recent performance has overcome previous downturns.

Regarding the macroeconomic backdrop, Switzerland, the Swiss Franc's home, has demonstrated steady growth in GDP over the years. The Swiss GDP stood at $725.57B in 2018 and has expanded consistently since then, reaching $800.64B in 2021, representing an increase of approximately 10.34%. This steady economic growth has contributed positively to the Swiss Franc's strength, which, in turn, has influenced the performance of the FXF ETF.

The performance of key financial metrics has further underscored Switzerland's economic health. For instance, the GDP growth rate increased from -2.38% in 2020 to 4.22% in 2021, showing a robust recovery from the economic downturn. The GDP per capita, another indicator of economic well-being, rose by 7.4% in 2021 to reach $91,992, marking a solid recovery and growth from the previous year.

Switzerland has maintained a relatively low debt-to-GDP ratio on the fiscal front compared to other developed nations. In 2020, the country's debt-to-GDP ratio stood at 20.91%, up marginally from 18.95% in 2019, suggesting the government's prudent management of its public finances.

The Swiss National Bank (SNB) has proactively shaped the country's monetary policy to foster economic growth. It raised interest rates by 250 basis points in the current tightening cycle to 1.75%. This increase signals the bank's commitment to cooling inflation, which expects to average 2.2% this year and the next, slightly above the 2% target.

The currency recently reached its highest level against the dollar in over eight years, propelled by a softer-than-expected US inflation figure; this has led to a surge in the FXF ETF, as it closely follows the Swiss Franc's trajectory.

Invesco CurrencyShares Swiss Franc Trust (FXF) Future scenarios

1. Economic Strength: The GDP of Switzerland has been growing consistently over the past few years, with an 8.21% increase from 2020 to 2021. In addition, the GDP per capita has also shown an upward trend, indicating the country's overall economic well-being. If this economic momentum is sustained, it could bolster the ETF's performance.
2. Swiss Franc Appreciation: The Swiss franc has been strengthening against the dollar, reaching its highest level since January 2015. Continuing this trend could benefit the ETF, as a stronger Swiss Franc would result in higher ETF values.
3. Monetary Policy: The Swiss National Bank (SNB) has increased interest rates by 250 basis points to 1.75% in the current tightening cycle, indicating a strong commitment to combating inflation. Higher interest rates often translate into a stronger currency, attracting foreign capital. If the SNB continues to take a hawkish stance on interest rates, the Swiss Franc and the FXF ETF could further appreciate.
4. Lower Debt: Switzerland's debt-to-GDP ratio has been lower than many developed economies, suggesting a more sustainable fiscal position. This could add to the appeal of the Swiss Franc as a relatively secure and stable investment.

In conclusion, the Swiss economy has shown resilience and consistent growth, reflected in the strengthening of the Swiss Franc and the performance of the Invesco CurrencyShares Swiss Franc Trust (FXF). The trends in macroeconomic indicators, coupled with the country's sound fiscal management, bode well for the continued performance of this ETF.
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