Buy Dollar, Sell Franc to Avoid Equity Impact, RBC Capital Says

By Candice Zachariahs

Nov. 14 (Bloomberg) -- Investors should buy the dollar and sell the Swiss franc as the pair trades independently of equity markets and the Swiss National Bank has expressed concern about the strength of its currency, RBC Capital Markets said.

Investors should sell the franc at 1.1880 per dollar, betting it will slump to at least 1.2210. They should exit the trade if the currency strengthens to 1.1650, RBC said.

The dollar-franc is one of eight major currency pairs ``that is not currently taking its cues from global equity markets, with short-term correlations close to zero,'' wrote London-based Adam Cole, head of global currency strategy at RBC Capital Markets, in a note yesterday. ``This is one of the few ways of playing our fundamentally U.S. dollar-positive view, whilst at the same time avoiding exposure to short-term equity market volatility.''

The franc headed for its second consecutive weekly decline, trading at 1.1875 per dollar as of 8:11 a.m. in Tokyo, from 1.1789 on Nov. 7.

Most of the 45 possible pairs among 10 of the most-traded currencies against the dollar are trading as ``equity market proxies,'' Cole wrote. The dollar-franc is the ``most notable exception.'' RBC was looking at the euro and the currencies of Australia, Canada, Denmark, Japan, New Zealand, Norway, Sweden, Switzerland and the U.K.

The Swiss National Bank unexpectedly lowered its main lending rate by 50 basis points to 2 percent on Nov. 6 and said the economy may contract in 2009. SNB president Jean-Pierre Roth said in an interview with the Neue Zuercher Zeitung Nov. 1 that the franc's advance and higher money market rates were a ``big challenge'' for the bank.

The SNB and the Bank of Japan are the only central banks among the 10 nations to have ``expressed real discomfort with current exchange rate levels,'' wrote Cole. He recommends investors add to their bets against the franc if the currency weakens to the initial 1.2210 target.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net