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How to Trade on a Possible Currency War
CNBC.com | March 16, 2012 | 07:09 PM EDT

Don't look now, but a currency war may be starting. Here's how to play it.

Did you notice Norway's interest rate cut? How about the talk of an overvalued currency in Australia? It's sure starting to sound like a currency war out there.

"You're starting to see the beginnings of it, particularly in Norway," says Brian Kelly of Shelter Harbor Capital. He told CNBC's Scott Wapner he is short the Australian and New Zealand dollars because he thinks a currency war is possible.

Rebecca Patterson , chief markets strategist for J.P. Morgan Asset Management, Institutional, has a trade on the prospect of a fight for lower interest rates that would drive currencies lower.

"My favorite 'debaser' is the Japanese yen," she says. "Japan used to have a very large current account surplus, and that's evaporated." Also, Japanese investors are starting to invest overseas again.

In J.P. Morgan's view, she says, "the yen right now is likely to hit 86 against the dollar in the coming months, maybe even higher."

So Patterson wants to buy the Canadian dollar against the yen. "I like Canada because it will benefit from an improving U.S. economy," she says. She wants to enter the trade at 84.00, setting a stop at 82.00 and a target at 88.00.

You can watch the discussion on this video.

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