Check Out Deutsche Bank's Guide To Which Currencies Are Cheap, And Which Are Way Too High


Photo: Deutsche Bank

2010 has seen many a market commentator and participant slam the dollar, for a variety of reasons, including further Fed quantitative easing and weakness in the U.S. economy.There is a sense now, according to Deutsche Bank, that the dollar is undervalued against a global basket of currencies and that it may be time to get back in.

That conclusion is based on their assessment of dollar purchasing power parity. Deutsche Bank calculates this statistic utilising an average from January 1980 to December 2004, and uses the consumer price index to deflate the valuation.

Purchasing power parity looks at what you can purchase in once currency, vs. another. In the case of the dollar, right now, you can purchase less with it than other currencies. The well-known Big Mac Index — which looks at what a Big Mac costs in various countries in currencies —

So, from this metric it would seem the dollar is cheap, historically, compared to other currencies. Whether or not this is actually true, when considering current Fed policy, is up for debate.

The euro is undervalued compared to many global currencies.

There's a 13% gap the dollar could make up.

And the euro, with all the worry about its stability, is still too expensive.

And the yen, with worries about the strength of the Japanese economy and aggressive QE from the Bank of Japan, is too strong too.

Even though the UK is in recovery mode and cutting its deficit, its currency also appears too strong.

The Swiss Franc is also overvalued against the dollar.

And the Canadian Dollar is now too high against the U.S., even though the country's economy remains robust and its commodities sector strong.

The Aussie Dollar is too to high, likely because of its association with Chinese growth.

And the New Zealand Dollar can be thrown in this basket as well.

Thinking about the fate of commodities in 2011?

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