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Appetite for AUD bonds fading? - Nomura

FXStreet (Bali) - Foreign flows explain AUD divergence with commodity prices, but this could be fading, notes Charles St-Arnaud, FX Strategist at Nomura.

Key Quotes

"Strong inflows into AUD assets, especially bonds, have been responsible for the divergence between the AUD and commodity prices so far this year."

"However, with yields having declined significantly in recent months leading to the smallest rates differential vs. the US since 2006, there are some signs that appetite for AUD bonds may be fading."

"However, M&A flows, which have been robust so far this year, remain strong and are not showing signs of fading. We believe that as the US economy continues to improve and the Federal Reserve gears up toward a rate hike, the USD and US Treasury yields should move higher. This will be a negative for the AUD and we think that AUD/USD could end the year below 0.90."

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