AUD vs EUR and JPY
Predicting FX is really all about predicting the rate differential in the short run.
That applies to AUD vs anything, but we look at JPY and EUR below.
The rate differential comes from the differing policy stances; Japan doesn’t want to tighten after the first whiff of inflation in generations…
…and the Europeans arguably can’t, given it is less aggregate demand (overheating) and more supply side (oil) driven.
Given that we are pretty bearish on commodities (due to China demand) and fairly bearish on the outlook for the Australian economy (given housing related vulnerabilities), we see exposure to the safe haven yen, and cyclically cheap euros, as attractive, at the margin.
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