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Purchasing Power Parity Implied Currency Valuations

Major Developed Market Currencies

CountryExchange
Rate
Relative
Valuation
-80
-60
-40
-20
0
20
40
60
80
100
United States Dollar10%
  
Euro1.379416.49%
  
Japanese Yen0.0098-1.54%
  
British Pound1.649511.67%
  
Canadian Dollar0.892110.44%
  
Australian Dollar0.908741.39%
  
Swiss Franc1.133184.02%
  
Swedish Krona0.155743.79%
  
Norwegian Krone0.165179.81%
  
New Zealand Dollar0.853642.3%
  

Major Emerging Market Currencies

CountryExchange
Rate
Relative
Valuation
-80
-60
-40
-20
0
20
40
60
80
100
Chinese Yuan0.1606-31.57%
  
Russian Ruble0.0276-29.46%
  
Brazillian Real0.4306-15.56%
  
Indian Rupee0.0164-63.48%
  
Mexican Peso0.0757-31.33%
  

All

CountryExchange
Rate
Relative
Valuation
-80
-60
-40
-20
0
20
40
60
80
100
Australian Dollar0.908741.39%
  
Argentina Peso0.1255-58.48%
  
Brazillian Real0.4306-15.56%
  
Canadian Dollar0.892110.44%
  
Chilean Peso0.0018-26%
  
Chinese Yuan0.1606-31.57%
  
Colombian Peso0.0005-33.11%
  
Czech Koruna0.0503-32.35%
  
Danish Krone0.184860.7%
  
Egyptian Pound0.1437-54.69%
  
Euro1.379416.49%
  
Honk Kong Dollar0.1289-28.28%
  
Hungarian Forint0.0044-33.51%
  
Indian Rupee0.0164-63.48%
  
Indonesian Rupiah0.0001-26.72%
  
New Israeli Sheqel0.28736.07%
  
Japanese Yen0.0098-1.54%
  
Lithuanian Litas0.3995-28.85%
  
Malaysian Ringgit0.3023-40.93%
  
Mexican Peso0.0757-31.33%
  
New Zealand Dollar0.853642.3%
  
Norwegian Krone0.165179.81%
  
Pakistani Rupee0.0102-55.41%
  
Peruvian Nevo Sol0.3563-41.46%
  
Philippine Peso0.0221-42.59%
  
Polish Zloty0.3285-33.64%
  
Russian Ruble0.0276-29.46%
  
Saudi Riyal0.2666-12.69%
  
Singapore Dollar0.7851-17.72%
  
South African Rand0.0918-47.16%
  
South Korean Won0.0009-26.34%
  
Sri Lankan Rupee0.0077-51.29%
  
Swedish Krona0.155743.79%
  
Swiss Franc1.133184.02%
  
New Taiwan Dollar0.0327-49.19%
  
Thai Baht0.0309-43.89%
  
New Turkish Lira0.4477-40.28%
  
Ukrainian Haryvnia0.0948-57.25%
  
United Arab Emirates Dirham0.272333.02%
  
British Pound1.649511.67%
  
United States Dollar10%
  

Tables last updated on 03/22/2014.

The Purchasing Power Parity Theory

Purchasing Power Parity (PPP) is a method for determining where the currency exchange rate "should" be. The theory is that currency exchange rates between two countries should be at a level where goods can be purchased at the same price in either country. For example, if the price of an identical item is cheaper in Canada than in the U.S., than the Canadian Dollar is considered undervalued and its value is likely to rise against the Dollar.

While, PPP determines exchange rates in the long term, it has next to nothing to do with short term fluctuations. News, interest rate changes, inflation expectations, and growth expectations have more to do with short term exchange rates than PPP.

Above we have a table with the PPP implied relative valuation to the U.S. Dollar, using data from the IMF. Green bars indicate a currency that is undervalued, and red bars, an overvalued currency. Keep in mind that an undervalued currency is not guaranteed to rise, valuations can be affected by other factors such as inflation and constraints of trade.

Purchasing Power Parity valuations are best used along with other indicators, such as interest rates and momentum. This is what we do in our currency rotation strategy.