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BNP Paribas STEER™ Summary (11 March 2014)

Core Content

BNP Paribas STEER™ is a short-term fair value model for exchange rates, based on interest rate differentials, equity performance, and commodity prices. It is used to identify over- and under-valuation of currencies relative to their fair values, which can inform trading decisions and highlight potential exchange rate movements.

Main Views and Key Information

USD vs Major Currencies

• USD/EUR: STEER indicates scope for the USD to strengthen against the EUR.
• USD/GBP: STEER signals a bearish outlook, with the pair declining from 1.6647 to a fair value of 1.6490.
• USD/AUD: The AUD is overvalued, with USD/AUD at 0.9036 and a fair value of 0.8735, showing a 1.8% misvaluation.
• USD/CAD: The CAD remains overbought, with USDCAD at 1.1117 and a fair value of 1.0900, indicating a 1.75 z-score overvaluation.
• USD/JPY: Trading in line with its fair value of 103.00.

EUR Crosses

• EUR/NOK: EURNOK is vulnerable to a move higher towards its fair value of 8.5260, as it is currently at 8.2610.
• EUR/SEK: EURSEK is trading in line with its fair value.
• EUR/CHF: EURCHF is 0.8 z-scores cheap, indicating a potential for further decline.
• EUR/GBP: EURGBP is trading slightly above its fair value, with a forecast bias of upward movement.

Other Currency Pairs

• NZD/USD: NZDUSD is trading in line with its fair value of 0.8425.
• GBP/USD: Bearish signal, fair value at 1.6490.
• EUR/USD: EURUSD has rallied, but STEER suggests it may move lower towards its fair value of 1.3680.

Emerging Markets (EM) STEER™

• EUR/PLN: EURPLN is significantly overvalued, trading 3.09 z-scores above its fair value of 4.1590.
• USD/COP: USDCOP is overvalued by 2.3 z-scores, with a fair value of 2008.
• USD/CLP: USDCLP has moved closer to its fair value of 573 due to a decline in copper prices.
• USD/IDR: USDIDR is slightly undervalued, with a fair value of 11492.
• USD/INR: USDINR is undervalued, with a fair value of 61.1640.
• USD/THB: USDTHB is undervalued, with a fair value of 32.5410.
• USD/SGD: USDSGD is slightly undervalued, with a fair value of 1.2710.
• USD/PHP: USDPHP is slightly overvalued, with a fair value of 44.1290.
• USD/TWD: USDTWD is slightly undervalued, with a fair value of 30.3750.

Regional Highlights

• CEEMEA: EURPLN is overvalued, while EURRON and USDILS are now in line with their STEERs. USDRUB is undervalued, and the model does not pass the cointegration filter.
• Asia: All Asian currencies are within the +/-1.5 z-score corridor, with USDTHB and USDINR slightly undervalued.
• Latin America: USDBRL is slightly undervalued, USDCLP is near fair value, USDMXN is undervalued, and USDCOP is overvalued.

Summary Table

Important Notes

• Z-Score Definition: Deviations from STEER™ are measured as a z-score, which is the % mis-valuation divided by the standard deviation of mis-valuations over the past year.
• Forecast Bias: A mis-valuation greater than 1.5 z-scores is considered a significant predictor of exchange rate movements.
• Cointegration Filter: Models that do not pass this filter have lower forecasting power.
• Non-Independent Research: This document is classified as non-independent marketing communication and not subject to independent investment research standards.

Disclaimer

• This document is not an exhaustive analysis and may be subject to conflicts of interest.
• It is not intended for retail clients and is for professional clients only in certain jurisdictions.
• BNP Paribas may have financial interests in mentioned entities and may have acted on the information before publication.
• No liability is accepted for any loss arising from the use of this report.