FX Market Update provides a quantitative overview of the currency market, including several valuation tools and monitors.
Looking at the signals from our short-term financial models, we observe considerable misalignments in the commodity currencies AUD and NZD, which both look overvalued. However, the single biggest misalignment in pricing is found in AUD/NZD, trading 4.0 above the model's estimate. In particular, the recent improvement in sentiment onthe Chinese economy has benefited AUD relative to NZD due to the high sensitivity of Australian exports to Chinese growth. However, we think it is still too early to call the bottom and consequently, we still like to be short AUD against the USD, despite the negative carry.
Following the previous week's rally in NOK, NOK/SEK currently looks overbought, according to our short-term financial model, as the cross trades 1.8 standard deviation above the model's estimate of 1.067. Fundamentally, we still see more upside in NOK/SEK - especially after Norges Bank kept both the interest rate and its implied future rate path unchanged at its MPC meeting in March and thereby removed an import risk factor for the NOK. However, in the near term, we prefer to stay sidelined as our models cannot fully explain the latest move higher. In the event of a correction lower we would, however, consider going long NOK/SEK again.
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