Swiss Franc: Undervaluation supports APAC recovery trades – BNY

BNY’s Geoff Yu highlights that the Swiss Franc looks undervalued on both nominal and real effective exchange rate measures, near one-year and 15‑month lows respectively. With the Swiss National Bank expected to stay on hold, he favors CHF mean‑reversion trades versus surplus APAC currencies such as SGD and CNY, while avoiding TWD, KRW and CHF/JPY given equity-hedging and limited relative value.

Franc undervaluation and APAC crosses

"The franc met further resistance this week after reports that the Swiss National Bank is likely to remain on hold for an extended period. We’re surprised the market is reacting to these headlines, given how clear the SNB’s conditional forecasts – which explicitly give this guidance – already are. The recent rise in global yields has reinforced the franc’s role as a funding currency, but valuations now point to meaningful recovery potential."

"CHF is close to its weakest level in a year on a NEER basis and at a 15-month low in REER terms. Beyond the balance-of-payments backdrop, these weaker valuations should also increase the SNB’s tolerance for currency strength, making intervention a remote risk."

"Owning CHF remains expensive in carry terms. To reduce the impact of the Fed on dollar pairs, we prefer carry-efficient expressions against APAC currencies, especially SGD and CNY. The franc has weakened sharply against both in recent months, leaving the clearest scope for mean reversion."

"These surplus currencies may still struggle against the dollar while the current policy backdrop persists, but they offer better relative value against CHF. We avoid TWD and KRW because equity hedging flows remain a headwind. CHF/JPY also offers less value, despite continued concerns over policy credibility in Japan."