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Undervalued USD and the next phase of currency wars – Rabobank

FXStreet (Barcelona) - According to the Analysts at Rabobank, OECD PPP suggests that the USD is undervalued vs. other developed world currencies and this factor can fuel the momentum for the next phase of currency wars.

Key Quotes

“Purchasing power parity estimates of fair value support the continued use of aggressive methods by the SNB to prevent further exchange rate appreciation.”

“The OECD PPP model suggests that the CHF is 31% overvalued relative to the USD.”

“The same model, however, provides dramatically different implications for other central banks. Although the growth and inflation charts above support the need for weaker currencies in Japan and the Eurozone, PPP suggests that the ECB and the BoJ have little reason to push their currencies lower.”

“Fair value for EUR/USD is close to current values, while the JPY is now 13% undervalued vs. the USD.”

“That said, PPP does suggest that USD is undervalued vs. all other developed world currencies – a factor which is likely to support the momentum behind the next phase of currency wars.”

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