AUD/JPY bounces after hitting 15-month lows on intense flight to safety


  • AUD/JPY rebounds after crashing to 15-month lows near 90.00.
  • Risk-aversion remains in full steam, as Iran is likely to attack Israel.
  • The Japanese Yen keeps rallying on safe-haven flows at the expense of the higher-yielding Aussie.

Having tested offers briefly above 95.00 in the Asian session, AUD/JPY has turned south, witnessing a steep sell-off in the European session on Monday. Heightening risk-aversion across the financial markets contributed to increased flight to safety in the Japanese Yen while traders cut their exposure in the higher-yielding currency – the Australian Dollar.

As safety flows intensified, AUD/JPY lost five big figures to reach the lowest level in 15 months at 90.16 before rebounding swiftly to near 92.00, where it now wavers. Despite the upswing, the pair still sheds nearly 4% on the day.

Markets adopt a ‘sell everything’ mode, as they sense an imminent Iran-Israel war after US Secretary of State Antony Blinken said during the G7 meeting on Sunday that an attack by Iran and Hezbollah against Israel could start as early as Monday, Axios reported, citing three sources.

Further, US recession fears came to the fore, following a weak American employment report published on Friday. Escalating Middle East tensions combined with looming US recession risks fuelled intense risk aversion and provided extra legs to the Japanese Yen’s upsurge, smashing AUD/JPY, the so-called risk barometer.

The Japanese Yen also remains underpinned by the divergent monetary policy outlooks between the US Federal Reserve (Fed) and the Bank of Japan (BoJ).

Meanwhile, the Aussie found temporary respite from the upbeat China’s Caixin Services PMI data for July, which jumped to 52.1 from June’s 51.2. However, the Australian Dollar succumbed to the bearish pressure due to unabated demand for safety assets, exerting additional downside pressure on the AUD/JPY cross.

Looking ahead, traders will pay close attention to any developments on the Middle East geopolitical front, as an Iranian attack is foreseen in the next 24 to 48 hours on Israel. Also, the pair awaits the Reserve Bank of Australia’s (RBA) policy announcements on Tuesday for a fresh directional impetus.

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD climbs above 1.0500 on persistent USD weakness

EUR/USD climbs above 1.0500 on persistent USD weakness

EUR/USD preserves its bullish momentum and trades above 1.0500 on Monday. In the absence of high-impact data releases, the risk-positive market atmosphere makes it difficult for the US Dollar (USD) to find demand and helps the pair push higher.

EUR/USD News
GBP/USD rises to 1.2600 area as mood improves

GBP/USD rises to 1.2600 area as mood improves

Following a short-lasting correction, GBP/USD regains its traction and trades at around 1.2600. The US Dollar struggles to stay resilient against its rivals as market mood improves on Monday, allowing the pair to build on its bullish weekly opening.

GBP/USD News
Gold turns bearish and could test $2,600

Gold turns bearish and could test $2,600

After recovering toward $2,700 during the European trading hours, Gold reversed its direction and dropped below $2,650. Despite falling US Treasury bond yields, easing geopolitical tensions don't allow XAU/USD to find a foothold. 

Gold News
Five fundamentals for the week: Fed minutes may cool Bessent boost, jobless claims, core PCE eyed

Five fundamentals for the week: Fed minutes may cool Bessent boost, jobless claims, core PCE eyed Premium

Will the rally around Scott Bessent's nomination continue? The short Thanksgiving week features a busy Wednesday packed with events, and the central bank may cool the enthusiasm.

Read more
Eurozone PMI sounds the alarm about growth once more

Eurozone PMI sounds the alarm about growth once more

The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.

Read more
Best Forex Brokers with Low Spreads

Best Forex Brokers with Low Spreads

VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.

Read More

Forex MAJORS

Cryptocurrencies

Signatures