Aussie Dollar vulnerable to risk-off sentiment

AUDJPY

The Yen strengthened on a safe-haven bid amid a backdrop of coursing risk aversion, while the Dollar also traded firmer against most currencies outside the case against the Japanese currency. USDJPY fell to an 11-day low at 111.86, while AUDJPY dove over 1% into 2-year territory and EURJPY printed 2-month lows.This has followed weak earnings reports from Amazon and Google, which hit a nerve in global equity markets as historically lofty valuations clash with increasing signs of a sea-change shift to a less favourable business environment (less financial market liquidity, rise in trade protectionism).

AUDJPY is the biggest mover out of the main Dollar pairings and associated cross rates, and reflective of a coursing risk-off theme in global markets presently, with European stocks turning sharply lower from the open, and with USA500 futures showing a near 1% loss, which more than halves the rebound seen on Wall Street yesterday. The AUDJPY cross has a relatively high beta characteristic, and is often described as being a Forex market barometer of risk appetite.

The cross has posted a 7-week low at 78.71, and just breached below the September-7 low and hence it enters into the 2-year low territory. Next real Support at August and September 2016 bottom and the confluence of 78.6% Fib. retracement since 2016 rally, at 76.16. Immediate Support level hold at FE 161.8, at 77.50

Australia, being a major exporter of commodities, tends to see its terms of trade erode during global downturns, which makes the Aussie Dollar vulnerable during periods of Risk Aversion, while the Japanese Yen tends to find safe haven demand by closing Yen-funded carry positions and by virtue of Japan’s massive current account surplus (and associated Japanese hedging of foreign income streams).

 

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Andria Pichidi

Market Analyst

HotForex

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