The DBS Equilibrium Exchange Rates (or DEER) indicate fair values for global currencies relative to a trade-weighted currency basket.

The JPY's (Japanese Yen) undervaluation is at an extreme and has triggered the government of Japan to intervene and support the JPY in May. After Japan's top currency official, Vice Finance Minister Mimura, issued a "final warning" to markets to get out of JPY shorts, USD/JPY saw a rapid tumble from over 160 to 156 on official intervention. Mimura's explicit warning marks a break from previous interventions, which were not pre-announced and thus delivered maximum surprise and impact. An explicit intervention strategy risks denting policymakers' credibility if official actions do not sustainably lift the JPY, but it can also serve to mobilize domestic investors to support the government's stance, given the large stock of foreign assets owned by public sector pension funds. The government is certainly not short of reserves to buy JPY, with its FX reserves standing at USD1.16trn in March, and above its July 2024 level when Japan last conducted a successful intervention that brought USD/JPY down from 161 to an interim bottom around 141.

The AUD (Australian Dollar) has overtaken the CHF to rank as the second most overvalued amongst major currencies, after the USD. The AUD's rapid climb is supported by two 25bps RBA rate hikes since February, with a third hike likely to come in May. This has made AUD the highest yielding currency in G10 FX, with AUD carry trades bolstering AUD's valuation to its highest since 2012. Australia's trimmed mean inflation has been sticky above the 2-3% target range since last October, while rising energy prices could pose further shocks to inflation. Still, if the RBA is to disappoint by tempering expectations of 2-3 more rate hikes this year, AUD valuation has room to ease somewhat.