UBS FX strategists have recently provided insights into currency valuations, suggesting that the Japanese Yen (JPY) currently offers the best value. They have adjusted their fair value estimate for the USD/JPY currency pair slightly lower to 125.
UBS maintains that a long position in the yen is the clearest bullish case from a valuation standpoint, attributing the persistent gap to fair value to the still-wide interest rate differentials between the US and Japan. They anticipate this might shift if US economic growth continues to decline.
In contrast, the Swiss Franc (CHF) is on the other end of the spectrum, with UBS’s fair value estimate for the EUR/CHF pair being modestly reduced from last quarter to 1.05, which is still considerably above the current spot price. The analysts expect the Swiss National Bank (SNB) to oppose any significant appreciation of the franc from its current levels.
The analysis of commodity-related currencies, often referred to as Commodity FX, reveals a more varied picture. The Australian Dollar (AUD) is considered undervalued, while the Canadian Dollar (CAD) is seen as overpriced according to UBS’s fair value estimate of 1.52 for the USD/CAD exchange rate.
The firm forecasts that USD/CAD could potentially drop to a low point of 1.30, but this outlook could be altered if Canada significantly increases its productivity growth—a key objective for the country’s new government.
Furthermore, revisions to purchasing power parity (PPP) data have led UBS to conclude that the Norwegian Krone (NOK) is more undervalued than previously thought. Nonetheless, the analysts note that achieving full convergence to fair value is problematic, as indicated by their forecast of 11.75 for the currency, due to Norway’s policy of maintaining oil revenues offshore. The New Zealand Dollar (NZD) is evaluated to be aligned with its fair value.
