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USD, CAD and AUD preferred to the EUR, JPY and CHF – Rabobank

FXStreet (Edinburgh) - Senior Currency Strategist Jane Foley at Rabobank expects the demand for the USD, CAD and AUD to gather traction vs. its other G7 counterparts.

Key Quotes

“The ECB first pushed its deposit rate into negative territory in June. The warning in May from ECB President Draghi of policy action in June was instrumental in sparking the current downtrend in EUR/USD”.

“Switzerland has been facing a deflation risk for years primarily due to an overvalued currency. Clearly a softer EUR for longer can only increase the threat. Following the ECB’s rate cut in June the SNB left no doubt that it “will continue to enforce the minimum exchange rate with the utmost determination”. The SNB’s floor at 1.20 appears to more ditch than a line in the sand and with this in mind, it can be argued that further threats of negative rates are almost inevitable”.

“The BoJ has not confirmed that it bought 3 mth paper yesterday for more than the redemption value, but these bill purchases are part of its huge QE programme and a Deputy BoJ Governor confirmed that he saw no problem with buying at sub zero rates”.

“There is the threat that negative rates may push further down the curve as the BoJ attempts to complete its huge monthly asset purchase target; particularly since it is possible that demand for Japanese paper has been increased by the ECB’s decision this month to push its discount rate further into negative territory”.

“It is likely that the BoJ’s policy message remains as aggressive as that of the SNB and ECB going forward. In terms of currency implications we would expect that USD, the AUD and the CAD to find good support vs. the EUR, JPY and CHF since in this environment they appear to be offering relatively high yield”.

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