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Currency volatility reduces investment, global trade: BofAML

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The current bout of currency volatility can reduce trade flows and foreign direct investment, said Claudio Piron, Bank of America Merrill Lynch co-head of Asia FX and rates strategy.

THE current bout of currency volatility can reduce trade flows and foreign direct investment, said Claudio Piron, Bank of America Merrill Lynch co-head of Asia FX and rates strategy.

He was giving a media briefing on Wednesday morning on the recent global phenomenon of "currency wars" - central banks attempting to stimulate growth by deliberately weakening their countries' currencies. This is done through lower interest rates or unleashing liquidity on the private sector by purchasing financial assets. A weaker exchange rate helps domestic exporters.

Swings in foreign exchange rates have been exacerbated as a result of the uncertainty about whether a central bank will lower interest rates.

"This makes investment decisions a lot harder ... increasingly there's some risk to China engaging in some limited depreciation," he said.

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If China depreciates the yuan, countries that export the most to it compared to their economy, like Korea, Australia and New Zealand, will be hit the hardest, he said.

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