BNY Sees Mean-Reversion Trades in Undervalued CHF Amid APAC Recovery

The Swiss Franc has reached near one-year and 15-month lows on nominal and real effective exchange rate measures, respectively. According to Geoff Yu from BNY, this undervaluation supports mean-reversion trades against surplus Asian currencies such as SGD and CNY. The Swiss National Bank's decision to stay on hold is expected, but market reaction is surprising given the SNB's clear conditional forecasts.

The recent rise in global yields has reinforced the Franc's role as a funding currency. However, weaker valuations suggest a meaningful recovery potential for the CHF. Geoff Yu notes that owning CHF remains expensive in carry terms, and to mitigate this impact, he prefers carry-efficient expressions against APAC currencies.

The surplus currencies may still struggle against the dollar while the current policy backdrop persists, but they offer better relative value against CHF. BNY advises avoiding TWD and KRW due to equity hedging flows, as well as CHF/JPY for limited relative value.