Bank of America strategists have recommended buying a three-month AUD/CHF digital call option with a target level of 0.5800, pointing to the Swiss franc's function as a funding currency and the Australian dollar's potential to benefit from a US-Iran agreement.
In a Monday note, strategists Oliver Levingston, Isabel Hartstein and Kamal Sharma set out the trade idea, saying tighter rate differentials and concrete steps toward reopening the Strait of Hormuz have strengthened the outlook for the Australian dollar. They explicitly recommend buying AUD/CHF on that basis.
"A deal to reopen the Strait of Hormuz is supportive for AUD, particularly against low beta currencies," the strategists said.
At the time of the note, the AUD/CHF pair was trading at 0.5619 on Monday. That level represented a 2.6% rise for the pair since the US attacked Iran at the end of February.
The bank flagged risks to the recommended position. Specifically, strategists warned that a sharp increase in volatility could undermine the trade. They also noted that a dovish decision from the Reserve Bank of Australia this week would pose a material downside risk for the position.
The recommendation centers on a digital call option with a three-month tenor and a predetermined payout if the 0.5800 target is reached. The strategists connect the trade thesis to two primary factors cited in their note: the role of the Swiss franc as a funding currency and improvements in the Australian dollar outlook tied to developments on the US-Iran front and related moves to reopen the Strait of Hormuz.
Market participants considering the position should weigh the specified risks identified by the bank - heightened volatility and potential policy moves by the Reserve Bank of Australia - both of which could affect currency valuations and the performance of the suggested option over the short three-month horizon.