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18 Jun 2013
Flash: AUD/CAD could see volatility with IMF announcement – UBS
FXstreet.com (New York) - Investors have long suspected that AUD and CAD are the main components of an 'other' category of currencies.
According to Research Analyst Gareth Berry at UBS, “Confirmation of this next week is not likely to affect FX market pricing significantly, although the AUD/CAD could see some volatility if one of the two currencies emerges as a clear favorite.”
There is another potential consequence too – over 70% of the Australian commonwealth bond market is in foreign hands. Instinctively this given the inherent risk of sudden capital flight should concern investors. However, the IMF's upcoming data release could reduce – but justifiably not eliminate - worries on that front. We are likely to discover that reserve mangers hold the lion's share of the Australian bond market. Their investment horizons are measured in years, not days.
“That means the traditional image of a foreign investor who tends to flee at the first sign of trouble does not apply in this case.” Berry adds. Recent evidence from Japan on this is compelling. Despite the latest JGB convulsions foreigners have not cut and run. At least half of foreign holdings are tucked away on sovereign balance sheets and this has actually been a source of stability for the yen. So the scale of foreign positioning in Australian bonds is not as threatening for AUD as it first appears - a view next week's IMF data is likely to encourage.
According to Research Analyst Gareth Berry at UBS, “Confirmation of this next week is not likely to affect FX market pricing significantly, although the AUD/CAD could see some volatility if one of the two currencies emerges as a clear favorite.”
There is another potential consequence too – over 70% of the Australian commonwealth bond market is in foreign hands. Instinctively this given the inherent risk of sudden capital flight should concern investors. However, the IMF's upcoming data release could reduce – but justifiably not eliminate - worries on that front. We are likely to discover that reserve mangers hold the lion's share of the Australian bond market. Their investment horizons are measured in years, not days.
“That means the traditional image of a foreign investor who tends to flee at the first sign of trouble does not apply in this case.” Berry adds. Recent evidence from Japan on this is compelling. Despite the latest JGB convulsions foreigners have not cut and run. At least half of foreign holdings are tucked away on sovereign balance sheets and this has actually been a source of stability for the yen. So the scale of foreign positioning in Australian bonds is not as threatening for AUD as it first appears - a view next week's IMF data is likely to encourage.