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Forex: AUD “Currency War” lins on the rise - BMO Capital Markets

FXstreet.com (Barcelona) - Stephen Gallo, European Head of FX Strategy at BMO Capital Markets that AUD is finding itself at the centre of the rising links to “currency wars”.

He begins by noting that the RBA’s battle to restrain AUD gains has moved in favour of the former and a weaker AUD for the time being, but he believes that there will be more hurdles for the RBA to overcome. Further, for the RBA to be victorious, and taking a page out of the BoJ’s book to a degree, the Bank may have to fundamentally “alter the markets’ psychology” towards the AUD. He writes, “This may mean taking a highly nuanced approach to restraining AUD gains or forcing outright declines.” Gallo believes the most important battle for the RBA to win pertains to the Bank’s ability (or lack thereof) to, for a time, “de-correlate” the AUD from risk assets and base metals prices in particular. As such. a temporarily “de-correlated” AUD, relative to changes in certain risk assets and base metals prices, should leave the currency free to fluctuate primarily on the basis of domestic or external macro economic fundamentals. He finishes by commenting that for the time being, his team are maintaining their Q3 and year-end targets in AUD/USD at 1.0100 and 1.0000 respectively, but asses that the predominant risk currently seems to be skewed towards an even weaker AUD persisting into 1H 2014.

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