BNY’s Geoff Yu notes that the Swiss Franc (CHF) is currently undervalued on both nominal and real effective exchange rate (REER) measures, with the currency near its weakest level in a year on a nominal effective exchange rate (NEER) basis and at a 15-month low in REER terms [1]. This undervaluation comes as the Swiss National Bank (SNB) is expected to remain on hold for an extended period, a stance that Yu finds unsurprising given the SNB’s explicit conditional forecasts [1].
The recent rise in global yields has reinforced the franc’s role as a funding currency, but current valuations suggest meaningful recovery potential for CHF. Yu argues that these weaker valuations should increase the SNB’s tolerance for currency strength, making the risk of intervention remote [1].
Despite the fact that owning CHF remains expensive in carry terms, BNY prefers mean-reversion trades against surplus APAC currencies such as the Singapore Dollar (SGD) and Chinese Yuan (CNY), as the franc has weakened sharply against both in recent months, presenting clear scope for recovery [1]. However, Yu advises avoiding trades involving the Taiwan Dollar (TWD) and South Korean Won (KRW) due to ongoing equity hedging flows, and also sees limited value in CHF/JPY trades despite concerns over policy credibility in Japan [1].
Yu also notes that while surplus APAC currencies may continue to struggle against the US dollar under the current policy backdrop, they offer better relative value against the Swiss Franc [1].
CONCLUSION
BNY’s analysis suggests that the Swiss Franc’s undervaluation presents opportunities for mean-reversion trades against select APAC currencies, particularly SGD and CNY. The SNB’s expected policy stance and current market conditions support this view, while risks of intervention are seen as low. Investors are advised to avoid TWD, KRW, and CHF/JPY trades due to less favorable conditions.