20170112-法国巴黎银行-BNP_PARIBAS_FEER__Fundamental_Equilibrium_Exchange_Rates_Long-term_currency_valuation_22页_723kb

BNP PARIBAS FEER Summary

Core Concept

BNP Paribas FEER (Fundamental Equilibrium Exchange Rate) is a long-term currency valuation model based on economic fundamentals. It estimates the exchange rate that aligns an economy with both internal and external balance, i.e., no output gap and a sustainable current account balance.

Key Variables Influencing FEER

• Inflation: Affects the internal balance.
• Productivity changes: Influences the long-term competitiveness of a currency.
• Terms of trade: Driven by commodity prices, impacts external balance.
• Net foreign assets (NFA): Reflects the economy's external position.

G10 Currency Valuations (as of 11 January 2017)

• The USD is overvalued by 26% on a trade-weighted basis.
• GBP is undervalued by 25% against the USD but fairly valued against the EUR.
• JPY is undervalued by 37% against the USD and 14% against the EUR.
• CAD is slightly overvalued by 4.4% against the USD.
• AUD and NZD are undervalued against the USD.
• CHF is overvalued against both the EUR and USD.
• SEK and NOK are undervalued against the EUR.

EURUSD Valuation

• EURUSD is undervalued by 25% against its FEER of 1.33.
• The eurozone's current account balance has improved due to a combination of undervaluation of the EUR and subdued domestic demand.
• The FEER for EURUSD has increased by 1.5% over the past year due to the eurozone's accumulation of net foreign assets and low inflation.

Eurozone Internal Valuations

• The FEER for the eurozone is 1.33, but fair values across member countries vary.
• Germany's FEER is 1.41, while Greece and Italy have lower fair values at 1.15 and 1.16 respectively.
• Convergence in fair values has occurred since the eurozone crisis, with Germany becoming less competitive and Greece, Spain, and Ireland improving competitiveness.

Brexit Scenario Analysis

Scenario #1: Foreigners lose appetite for UK assets

• The UK's current account deficit was 7% in the four quarters up to Q3 2016, largely financed by foreign investment.
• In the event of a loss of foreign demand, a sustained 15% depreciation of the GBP would be required to balance the current account.
• Since the Brexit referendum, the GBP has depreciated by 13%, but concerns about trade restrictions may limit the benefit of depreciation.
• The J-curve effect suggests the current account deficit will likely worsen before it improves.

Scenario #2: Barriers to UK exports to the EU

• 50% of UK exports go to the EU.
• In an extreme scenario with zero EU exports, a 30% depreciation of the GBP would be required to offset the impact.
• In a softer scenario with a third decline in EU exports, a 13% depreciation would be sufficient, similar to the depreciation since the referendum.

JPY Valuation

• USDJPY is overvalued by 37% against its FEER of 81.1.
• EURJPY is overvalued by 14% against its FEER of 108.
• The JPY remains undervalued due to the Bank of Japan's loose monetary policy.
• However, capacity constraints such as labor shortages prevent the full benefit of a weak currency on exports.

Commodity Currencies

• AUD and NZD are undervalued against the USD.
• CAD is slightly overvalued.
• CHF is overvalued, but its appreciation has not led to a decline in Switzerland's current account surplus, suggesting overvaluation may persist.

CHF, SEK & NOK

• SEK is undervalued due to a large current account surplus.
• NOK is undervalued, but its surplus is too large and its savings rate too high.
• CHF is overvalued, but its appreciation has not caused a decline in Switzerland's current account surplus.

How FEERs Are Calculated

• FEERs are derived from a multi-country model of current accounts.
• The model identifies exchange rates that would result in a sustainable current account balance.
• It incorporates long-term economic fundamentals like inflation, productivity, terms of trade, and NFA.

FEER vs PPP

• PPP (Purchasing Power Parity) uses relative inflation to estimate currency valuation.
• FEER includes additional factors like terms of trade and NFA, making it more comprehensive.
• Over the past 15 years, FEER has diverged from PPP as current account imbalances and commodity price variations have increased.

FEER and CLEER™

• CLEER™ (Cyclical Equilibrium Exchange Rate) provides a shorter-term valuation based on current macroeconomic fundamentals.
• It complements FEER by offering a medium-term perspective.
• For example, EURUSD FEER is 1.33, while CLEER™ is 1.07.

Legal Notice

• This document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• No liability is accepted for inaccuracies or omissions.
• The indicative prices and forecasts are based on internal models and are not binding or indicative of actual transaction terms.
• Performance data is for illustrative purposes and does not guarantee future results.

Conclusion

• The FEER model is a long-term valuation tool based on economic fundamentals.
• It highlights misalignments in major currencies like the USD, GBP, and JPY.
• Brexit scenarios show the potential impact of currency depreciation on the UK's current account.
• The model helps identify fair values and provides insights into currency trends and economic conditions.
• It complements PPP and offers a more nuanced view of currency valuation by incorporating terms of trade and net foreign assets.