AUD/CHF trading tutorial

In forex, traders have to choose the currency pair they prefer to trade, some traders prefer a volatile pair, while others prefer stable currency pairs, also known as; major forex currencies, and there are forex traders who prefer trading minor currency pairs.

Minor pairs are the forex pair consisting of currencies often traded in forex, but not as frequently as the major currencies, one type of minor currency is the AUD/CHF.

What is the AUD/CHF?

The AUD/CHF is a currency pair comprising the Australian dollars and the Swiss franc of Switzerland. The Australian dollar is the base currency while the Swiss franc is the quote currency. If the AUD/CHF is trading at 0.7308, you need 0.7308 Swiss francs to buy one Australian dollar.

History of the AUD/ CHF

Australian dollars (AUD)

The Australian dollar started operating in Australia in 1966 when the Australian pound got replaced by the Australian dollar. It is the official currency of Australia and other territories of Australia, such as Christmas Island, Norfolk Island, and Cocos Island.

Four other countries are independent of Australia but still use the Australian dollars as their main currency such as the Pacific Island States, Tuvalu, Kiribati, and Nauru. There are more than 71.12 billion Australian dollars in circulation equivalent to $57.71 billion.

In 2016, the Australian dollar became the fifth most traded currency in forex. It holds about 6.9% of the total volume bought and sold in forex. The Australian economy is highly dependent on the exports of commodities, such as agricultural products and minerals.

The Australian economy is stable, but the value of the Australian dollar rises and falls depending on the global trading conditions. When its trading partners are doing well economically and there is more demand for commodities, the Australian dollar increases in value.

When there is a global recession, there is a low demand for commodities, affecting trade between countries. It affects the export and import sector negatively which in turn affects the economy of Australia and reduces the value of Australian dollars in the financial markets.

Forex traders who buy and sell Australian dollars based on interest rates have to monitor agricultural and minerals prices.

Most Australian exports and imports are from China, Europe, Japan and the United States. Traders who trade the Australian dollar need to monitor the economies of these countries. Factors affecting these economies could potentially influence export and import.  

They can also monitor commodity and mineral prices in the global market; it plays a major role in the value of the Australian dollars. Some of the commodities Australia trades include; metals, wool, wheat and natural gas.

Swiss franc (CHF)

The Swiss franc is the official currency of Switzerland; it started operating in 1798 and became the main currency of Switzerland in 1850. Switzerland joined the Latin Monetary union in 1865 along with France, Italy and Belgium, which meant that the values of their currencies got tied to the value of gold.

This system ended in 2000 and 2015, and the Swiss National Bank, which is in charge of regulating the Swiss Franc, withdrew its peg to the Euro. This made the Swiss franc sharply increase in interest against the Euro, and many investors lost their investments due to this unannounced implementation.

The economy of Switzerland has a strong GDP, and the Swiss franc is the sixth most traded currency in the financial markets. Its economy largely depends on the services industry, which takes 74% of the GDP.

The service industry consists of tourism and banking. Major exports are agricultural products, metals, chemicals and machinery. It has low inflation rates and is considered a safe currency in forex due to its stable financial and political status.

Factors influencing the prices of the AUD/CHF

AUD/CHF has liquidity and volatility in the forex industry. Traders can use announcements and events to predict when the AUD/CHF market will experience volatility.

The Australian dollar has a higher interest rate than the Swiss franc even though both currencies are from two strong economies. When trading the AUD/CHF, you compare the value of the Swiss franc against the Australian dollar.

Trade with partners

Trade between countries means how much commodities get imported compared to how much gets exported. The balance of payment is positive, and the currency will do well if there are more exports than imports in a country, 

If there are more imports than exports, the country may have a deficit in its payments, and its currency decreases in value. With the AUD/CHF currency pair, you can determine the current value through the difference in trading conditions.

If the difference is negative, it indicates Switzerland has better trading relations than Australia. If this is the case, the AUD/CHF will face a downtrend, but if Australia has better trading conditions, its interest will increase, and the AUD/CHF will also increase in value.

The Gross Domestic Product (GDP)

When looking at the GDP of Australia versus that of Switzerland, Australia has a higher GDP of 1.6 trillion compared to the 748 billion of Switzerland. It indicates the Australian dollar is doing better than the Swiss franc.

The Australian economy has its GDP based on minerals exports and agricultural exports. It exports iron ore, coal, gold, oil, natural gas and beef. On the contrary, the economy of Switzerland depends on the tourism and banking industry.

When the GDP of Australia grows compared to that of Switzerland, you can expect the value of the AUD/CHF to increase. If the GDP of Switzerland grows compared to that of Australia, the Swiss franc will also increase in value, and the AUD/CHF will drop in value in the financial markets.

Interest rates

A high-interest rate currency attracts investors since it is a high yielding currency in forex and in the process increases its demand. Some countries increase or decrease the interest rates to deal with inflation or deflation, which forex traders use to make trading decisions.

The interest rates between Australian Dollars and the Swiss franc play a major role in the rising and falling of the AUD/CHF. If the Australian dollar has a higher interest rate than the Swiss Franc, the AUD/USD will increase in value.

When the Swiss franc increases its interest rates compared to the Australian dollar, the AUD/CHF pair will fall in value. The interest rate helps analyse the forex markets to know when to short the AUD/CHF or go long on the currency pair.

Monetary policies from central banks

The Swiss National Bank (SNB) is in charge of implementing monetary policies in Sweden. It has the mandate to ensure the stability of the Swiss franc in the financial markets. It can increase or decrease the interest rates of the Swiss franc.

In Australia, the Reserve Bank of Australia (RBA) is in charge of ensuring the stability of the Australian dollar. The policies executed by the SNB and the RBA influence the price movement of the AUD/CHF.

For example, if the SNB reduces the interest rates of the Swiss franc, the AUD/CHF prices will rise. On the contrary, if it decides to increase the interest, while the Swiss franc is considered safe heaven, it will attract more investors and strengthen against the Australian dollar, causing the AUD/CHF value to fall.

Economic factors

A high unemployment rate in either of the countries affects the country’s economy, which also affects the value of the currency. When a country has a high employment rate, the country’s GDP will grow, while high unemployment rates cause low economic growth.

Analysts monitor the Consumer Price Index (CPI). It indicates the rate of inflation of a country’s currency. The CPI increases in the SNB and RBA, If the It is above or below the central bank’s rate,

Relationship between trading partners

Australia has a robust trading sector as it is among the leading producer and suppliers of iron ore, coal, natural gas and agricultural products. It also imports machinery, vehicles, medicine and medical facilities, metals, plastics and furniture.

Its major trading partners are China which accounts for a high percentage of imports or exports, Countries in the European Union, Japan and the USA. It means that the value of the Australian dollar will rise and fall depending on the trading agreements between these countries.

If China or any of these countries is affected, the Value of the Australian dollar is likely to fall. It will affect the AUD/CHF, which will face a bearish market in the financial markets. 

AUD/CHF price analysis

Forex spreads of the AUD/CHF range from 0.67 to 0.77 for the previous five years. In 2020 the Swiss franc increased value when investors rushed against the effects of the pandemic to buy the Swiss franc as it is considered a safe- haven.

The Australian dollar fell by 18% and went from 0.68 to 0.56, in May, the Australian dollar began to recover and increased its value by 9%. This was due to the financial markets slowly returning to a stable state after prices fell.

In 2021 its highest prices were at 0.7217, and its lowest point in 2021 was in December at 0.6425. It has slowly recovered even as the global economy is growing from the low prices, and in march 2022, it was at 0.71.

It has not resumed the prices as before the Covid 19 pandemic, which had reached an all-time high of 0.7737 in 2017. Analysts are predicting the AUD/CHF will perform better with time due to the rise in fuel prices imposed by the war that is causing a shortage of oil and gas from Russia. The oil shortage is likely to increase the demand for Australian crude oil.

Strategies traders can use when trading the AUD/CHF currency pairs

Traders use different trading strategies to trade the AUD/CHF pair.

Trend trading the AUD/CHF

It is possible to follow a trend when trading the AUD/CHF. This currency pair is for countries with large economies which are stable and rarely affected by economic or political instability. Furthermore, the Swiss franc is considered a safe- haven because of its financial stability.

When trading a trend in the AUD/CHF, consider looking for a strong trend. You can use the trend and momentum indicators when identifying a trend. Ensure that you look at higher time frames to see the primary trend as the 4-minute chart may not give a clear picture of the price action.

After identifying a trend and formulating an entry strategy, most traders prefer using a breakout for entering the market. The Australian dollar is a commodity currency, which means, you have to monitor the trading relations with countries like China.

When trading the AUD/CHF, you will need fundamental and technical analysis. Ensure that you can apply technical indicators and understand the previous performance of the AUD/CHF in the financial markets.

Trend trading includes two methods, trading the overall trend, which can take days or even weeks. It also involves trading announcements and news. It requires the trader to conduct extensive fundamental analysis, and the events calendar plays a critical role in this process.

For trading the uptrend, traders go long on the AUD/CHF, and most traders trade the downtrend by shorting the AUD/CHF.

Swing trading the AUD/CHF

The swing trading strategy is also applicable for the AUD/CHF because of the small swings in its price action. Swing trading the AUD/CHF also requires the trader to use Fibonacci tools, trend lines and technical indicators.

Forex traders who want to swing trade the AUD/CHF need to apply technical and fundamental analysis to predict the price movement. Swing trading does not require a lot of dedication as day trading, and you can hold an open position for days or weeks.

Swing trading means the forex trader takes advantage of the smaller swing highs and swing lows. It means to go long on the swing lows and go short on the swing lows. It is also crucial to know when the AUD/CHF is active to profit from volatility.

The crucial factor traders need to know when swing trading the AUD/CHF, is how to conduct fundamental analysis that they can use to trade. You can use any time frame when swing trading, although using a lower time frame has more fluctuations which increases the risk and is not recommendable.

It is crucial to apply risk management strategies when swing trading. Some of these include the stop-loss and the take-profit. The ideal position to enter a trade when swing trading is when there is a pullback. The main problem is identifying whether it is an actual breakout or a retracement.

Apply technical tools such as Fibonacci, support and resistance levels. You can also use candlestick patterns to predict the movement of the prices. Swing trading is a practical trading strategy for AUD/CHF as it works even with forex pairs with less liquidity or widespread.

How to trade the AUD/CHF

Register a trading account with a forex broker

The first step is to consider looking for a forex broker that offers trading instruments such as currency pairs. Look at the speed of executions and trading platforms, trading tools, educational content, research tools and the trading costs.

Ensure to check if the forex broker is registered to operate within your jurisdiction. If you find a forex broker that meets all your requirements, open a trading account by filling in your details.

Download the trading platform

Forex brokers work with different trading platforms, there are those with their trading platforms that may not require a download. Others require the trader to choose from the variety of trading platforms they offer and download.

Deposit funds in your trading account

The forex broker will need you to link your trading account with a payment platform to deposit or withdraw. Forex brokers support various payment methods, and the deposit method is the same as for withdrawing for most forex brokers.

The minimum deposit depends on the forex broker, some have no minimum deposit, others have low, while others charge high. For some forex brokers, they require you to deposit the initial deposit to access certain features like the demo account.

Select the AUD/CHF

You can navigate the forex broker to get familiar with the trading tools and different windows to find the currency pairs you want to trade. Find and select the AUD/CHF pair, which will lead you to its price chart, enabling you to look at the price action.

You can look at its spreads, the highest leverage you can access when trading, and the technical tools you can use. Draw the support and resistance and look at other trading tools you can use.

Technical and fundamental analysis

A forex trader should analyse the AUD/CHF pair before trading. For fundamental analysis, you can look at previous events that caused fluctuation in the price action.

Study the history of prices to understand how the AUD/CHF works, upcoming events and news announcements from the Swiss National Bank and the Reserve bank of Australia. Technical analysis is also crucial. Forex traders have to know when and how to apply technical analysis tools.

Technical analysis tools include graphical tools, candlestick patterns, drawing tools and technical indicators. They allow traders to know when to enter or exit the market. They assist forex traders in confirming the price movements after fundamental analysis.

Develop a trading strategy

If you decide to trade the AUD/CHF, you require a trading strategy that you can apply to the price chart. The trading strategy consists of how to enter the market, apply risk management, use technical tools, and exit the market.

It is crucial for any forex trader who wants to succeed in trading AUD/CHF to have a trading strategy. It allows the trader to develop trading discipline and focus. A trader can create their trading strategy or borrow from advanced traders.

Use the social/ copy trading features to know trading strategies that experts use and practice trading with them. When developing a trading strategy, you also need to identify the trend to use with the trading strategy.

Risk management

Risk management tools are stop-loss and the Take- profit. They help limit the risk exposure and are crucial when the AUD/CHF is volatile. There are also the guaranteed stop-loss and the stop-limits.

Most forex brokers offer these features. They should be part of the trading strategy such that the forex trader can apply them while following the trading strategy.

Practice trading

Use the demo account to practice trading with your trading strategy on the AUD/CHF market. If you start trading immediately without practising your trading strategy, the chance of making mistakes is high.

Forex brokers offer a demo account with similar trading features as the live account for practice trading.

Live trading the AUD/CHF

After practising on the demo account, apply the trading strategy on a small trading account to manage the risk. The mini or micro accounts allow the trader to trade with limited funds on a live trading account before risking more funds.

You can deposit on the margin account and choose the appropriate leverage you prefer for trading. Apply the trading strategy you have developed, and be patient even if the market changes direction.

Apply risk management strategies when trading and follow your trading plan. It helps the trader avoid making trading decisions, based on the emotional judgement that could incur more losses.

Conclusion

The AUD/CHF is a currency pair with liquidity and volatility in the forex markets. The Australian dollar is stronger, while the Swiss franc is a stable currency. It makes it one of the few currency pairs forex traders can use for profits.

When trading this forex pair, understand the history and what influences the price movements. A piece of background knowledge will help the trader predict the price action based on its previous action.

Frequently Asked Questions

What is the AUD/CHF?

It is a currency pair in the financial market that consists of the Australian dollar (AUD)and the Swiss franc (CHF) of Switzerland.

Is the AUD/CHF a minor or exotic pair?

The AUD/CHF falls under currencies in the forex market that is unpaired with the USD and are also known as cross currency pairs. It means it is not among the major currency pair and gets identified as a minor currency.

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