If you are looking for what’s crushing the JPYAUD look no further.
There is a tremendous rate differential, reflecting the differing stances of monetary policy. It is cheaper than all but a handful of years. Given the safe-haven, flight-to-safety aspect, this is attractive to us.
Recall that capital flows to where it can get the highest return, which underpins the short-to-medium run predictive power of interest rate differentials.
(Over the longer run, as an aside, the correlation coefficient flips from positive to negative as interest rate parity holds. However, this seems to hold only over very long periods. In the short run, overwhelmingly, rate differentials drive FX.)
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