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Credit Suisse FX Survey 2021: Swiss companies not hedging currency risks more frequently despite COVID-19 crisis
Credit Suisse surveyed over 1,000 Swiss companies on their economic and exchange rate expectations as well as their approach to currency risks. Almost half of the respondents expect the Swiss economy to grow in 2021, although nearly one-third anticipate a recession. The companies predict an average EUR/CHF exchange rate of 1.07 and a USD/CHF rate of 0.93 at the end of 2021. In almost all of the areas covered in the survey, the companies' views are more divergent than in previous years. The survey also shows that despite the COVID-19 pandemic, only 40% hedge their foreign exchange risks.
Over 80% of the more than 1,000 companies that took part in the annual FX survey by Credit Suisse conduct at least a portion of their purchasing in euros, which actually makes the euro slightly more important than the Swiss franc. The Swiss franc nevertheless retains the upper hand when it comes to sales, where it is used by 70% of respondents. The second most important foreign currency is the US dollar, which is used by 45% of respondents for purchases and by 36% for sales. Other currencies play a relatively minor role.
Exchange rate expectations vary significantly
The divergence in respondents' exchange rate forecasts at the time of the survey in fall 2020 was greater than in any of the surveys conducted previously. The specific forecasts for the EUR/CHF exchange rate range from below 0.85 to 1.20. However, nearly 80% of the companies expect a rate of between CHF 1.05 and CHF 1.10 at the end of 2021. Responses concerning the US dollar were also more mixed than ever before. Approximately 45% of the companies predict a USD/CHF rate of 0.90 to 0.94 at the end of this year, while around 40% expect the dollar to hit CHF 0.95 to 1.00 by the end of 2021.
Consensus on key interest rates; mixed expectations regarding economic developments
At the time the survey was conducted, 44% of respondents expected the Swiss economy to grow in 2021 while 30% anticipated a recession. The remaining respondents (approximately 25%) thought economic output would remain stable in 2021. On monetary policy, however, there is a general consensus: Nearly 90% predict that the key interest rate of -0.75% set by the Swiss National Bank (SNB) will remain unchanged at the end of 2021. Only 6% of respondents believe it is likely that the rate will move further into negative territory, while 4% forecast an increase in the SNB's key interest rate.
No increase in currency hedging since the start of the pandemic
"Given the ongoing economic uncertainty and major importance of the euro and US dollar for Swiss corporates, it is worth noting that only 40% of companies hedge their FX risks," stated Claude Maurer, Head of Swiss Macro Economics & Strategy at Credit Suisse. The companies that did undertake hedging last year had an average hedging ratio of around 60%. The majority of respondents have not increased their hedging ratio since the start of the COVID-19 crisis, with more than one-third stating that their decision not to do so was due to uncertainty about future cash flows (14%) or was intended to maintain their flexibility and to allow them to benefit from heightened volatility (22%). Companies likewise showed restraint when changing their foreign currency cash holdings, with 72% of those surveyed not making any changes at all. The figure for the export sector was slightly lower at 65%.