Australia has been caught in the currency war crossfire

The policies enacted by central banks in Japan, Europe and the US have triggered a wave of competitive devaluations around the world and there is mounting pressure on the RBA to respond.

The European Central Bank’s launch of its €1.1 trillion quantitative easing program last week has sent shockwaves through global currency markets and triggered a wave of cuts to official interest rates around the world. There’s now intense speculation that the Reserve Bank will also respond with a rate cut when it meets next week.

The market has already pre-empted any move, with the Australian dollar breaking down sharply against the US dollar after the Herald Sun’s Terry McCrann foreshadowed a rate reduction. It’s now trading below US78c.

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