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Franc down 5% on week, dollar dips

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The Swiss franc fell past 1.05 francs per euro for the first time since the Swiss National Bank dumped its 1.20 francs cap two weeks ago on Friday, with markets increasingly convinced the bank is now intervening on both euro and dollar markets.

Unlike many campaigns of intervention by central banks, dealers say the SNB's buying of currencies has tended to be machine-driven and extremely difficult for even the biggest banks' dealers to see clearly.

But a rise in sight deposits last week, allied to the franc's steady rise since, solidified expectations that the SNB would act strongly to try to protect Swiss exporters from a weak .

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"Really what we're going through now is an exercise to determine where they will draw their line in the sand," said Michael Sneyd, a currency strategist with BNP Paribas in London.

"Typically in the past, they have accumulated euros and then moved some of that into dollars. We are not sure if that is what is happening here or if they are buying dollars directly."

The franc was trading 5.5 percent lower on the week at 1.0509francs per euro, up half a percent on the day. It also fell to a two-week low of 0.9285 francs per dollar.

The next controlled currency rate in investors' sights is the Danish crown. Thomson Reuters data showed the volume of crown trade on Friday was far higher than its average for the month.

The dollar is on track for its seventh month of gains, by far its strongest run in the free-floating era, but it has pulled back this week against the euro after a surge following the European Central Bank's unveiling of quantitative easing.

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On Friday, the euro inched up another 0.2 percent to $1.1390, pulling the dollar index down by a similar amount.

"Some of the big moves we saw after the ECB last week came in very low liquidity," BNP's Sneyd said. "It is no surprise that some short-term investors may have taken their money off the table this week. I think there's a lot of investors waiting to reload."

Commodity currencies were showing a tad more resilience after growing expectations of a cut in Australian interest rates next week sent the Aussie dollar to a 5-1/2 year low of $0.7720.

"The AUD's fall over the past 24 hours has been nothing short of stunning," said Raiko Shareef, currency strategist at Bank of New Zealand.

"The weight of expectation around next week's RBA meeting continues to mount. A nasty snapback beckons should the RBA fail to adjust its language toward an easing bias."