Which currency is the most expensive in the world today? If you’re scratching around for your next currency trade, or looking to invest abroad, the chart below may be of some interest to you.
The chart produced by Deutsche Bank is a visual indicator on what currencies it deems to be cheap or expensive right now based on capital and trade flows.
By combining its capital-based valuation and trade-based PPP (purchasing power parity) models together, Deutsche says it provides a more complete picture of valuations, using weights that reflect the relative importance of capital and trade flows for each currency.
For longer-term traders, or for investors buying overseas assets and considering whether to hedge your currency exposure, Deutsche says the Cap-PPP currency valuation model has “significant predictive power for FX, both in terms of directional accuracy and the magnitude of moves, especially over longer-term horizons”.
We know what your next question is – So how do you read the chart?
Basically, the further out from the centre the black line sits, the cheaper a currency is deemed to be, and vice versa.
Based on the latest valuation snapshot on May 2018, the Chinese yuan is deemed to be the most expensive currency of all those tracked by Deutsche, edging out the Thai Baht, South Korean won and Czech Republic Koruna.
At the other end of the spectrum, the Turkish lira, Mexican peso and Colombian peso were deemed to be the cheapest currencies last month.
Of the majors, the New Zealand dollar is the clear standout in terms of overvaluation at present. The US dollar, euro and Singapore dollar are also seen to be on the expensive side of the ledger.
In contrast, the Swedish krona, Canadian dollar, Malaysian Ringgit, British pound, Norwegian krone, Swiss franc and Australian dollar are all deemed to be cheap based on current ranking order.
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