Selling Swiss Francs a Good 'Peace Trade': Macquarie

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Strategists at Macquarie Bank say a shift in geopolitical risk could create an opportunity to sell the Swiss franc, framing it as a potential 'peace trade'.

"If there is a ‘surprise’ looming in the current fog of geopolitics, it could be that peace ‘breaks out’ over the next few months if some ongoing peace talks succeed," strategists say in a recent note.

They see positives in ongoing negotiations between Russia and Ukraine, and Iran and the United States.

Diplomacy is also active between the U.S. and Venezuela, the U.S. and Cuba, and in improving relations between the European Union and the United States.

Macquarie notes that the recent decline in gold prices suggests that gold’s geopolitical premium - to which the franc is closely correlated - may already be fading, indicating markets are beginning to price a reduction in tail risks.

In that environment, the bank sees value in positioning for franc weakness.

"Another good trade may be to go long EUR/CHF. There, implied vol is low, and the cross is near a historical low. A one-year one-touch EUR/CHF option struck at 0.99 has a 10-to-1 payout at current pricing. That feels cheap to us, even without assuming that the SNB intervenes to weaken the CHF, although it could if Swiss inflation falls below 0.0%," say strategists.

The call rests on the franc’s role as a safe-haven currency: if geopolitical tensions ease and investors reduce defensive allocations, currencies like the Swiss franc could underperform relative to higher-beta alternatives such as the euro.

However, Macquarie cautions that markets may need to navigate near-term volatility before any sustained peace premium emerges.

"Before any peace premium, markets might have to endure a nail-biting few days over Iran."

The bank notes that tensions in the Middle East are rising even as U.S. and Iranian officials cite progress in Geneva talks aimed at reaching a nuclear deal.

Reports confirm the U.S. is building its military presence off Iran which coincide with negotiations where official statements reveal progress has been made.

If diplomacy gains traction and safe-haven demand continues to recede, Macquarie argues that selling the franc, particularly via EUR/CHF structures, could prove an attractive trade.