CHART: The most overvalued and cheapest currencies in the world right now

Photo by Tim Graham/Getty Images

The Chinese yuan has taken on more prominence in recent months, thrust into the limelight as it continued to unwind against the US dollar.

At 6.957, the USD/CNY is currently at the highest level since May 2008, extending its rise in 2016 to 8.7%.

From lows of 6.0395 in January 2014, the US dollar has now rallied by over 15% against the yuan.

It’s been a big move, leading to severe bouts of volatility across financial markets in August last year and again at the start of 2016 as concerns that capital outflows could destabilise China’s financial system intensified.

However, even after such a pronounced, nerve-jangling move, the yuan is still the most overvalued currency in the world, according to modeling conducted by Deutsche Bank’s FX strategy team.

This chart from the bank tracks the value of individual currencies based on a series of fundamental indicators including purchasing power parity (PPP), effective exchange rates (EER) and fundamental-equilibrium exchange rate (FEER).


The black line is an average of all three, and is used by Deutsche to determine what currencies are expensive, and which are cheap, right now.

The further out the black line sits, the cheaper the currency is perceived to be.

Deutsche has even ordered them in a clockwise direction, moving from cheapest to most expensive.

Based on these three metrics, Deutsche determines that the Chinese yuan is currently the most expensive currency, beating out the likes of the Swiss franc, Philippines peso and US dollar for that title.

At the other end of the spectrum, the Japanese yen, Mexican peso and Polish Zloty are perceived to be the cheapest currencies in the world of those analysed.

While the rankings determined by Deutsche are based upon fundamental valuation metrics, not all factors that go into determining the level at which a currency currently sits, it serves as a reminder than even with recent weakness, the yuan is still seen as very expensive, potentially laying the foundation for further substantial weakness in the period ahead.