Deutsche on Aussie

The Australian dollar is expected to benefit from stock rallies, as the euro is capped by the ECB’s dovish stance and relatively lower yields, according to Deutsche Bank. “Looking at the relationship between stocks and FX since 2008, it’s clear that the Aussie is the best ‘risk-on’ trade, rather than the euro,” Deutsche Bank says. It notes that the ECB’s balance sheet is set to overtake that of the BOJ after December’s LTRO. So while the currency may gain an extra 1%, the bank says it remains comfortable with its 1H 2012 target of 1.20-1.25. EUR/USD trades at 1.3167. AUD/USD is at 1.0696.

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