APAC Currency Corner-Risk Off Redux

Risk-off redux

Risk sentiment is back-peddling once again. Last night we saw declines in both EU and US equities, and investors are seeking shelter under the USD 10-Year Treasury umbrella which saw its yield close below 1.70%. The flight to safe investments has left currency markets treading water amid another wave of “risk off’’ fever.


The Australian dollar plunged overnight driven by equity market falls in the US and Europe. Another bout of risk-off sentiment has gripped the market with the Aussie now testing the 0.7500 level. While USDJPY dynamics have led FX markets, it is now shaping up to be more than just a USDJPY story. Price action is suggesting that cross currency activity is kicking in with AUDJPY once again under heavy selling pressure. This selling pressure is outweighing any positive dynamic from the Australian dollar yield carry.

Adding to the Aussie negative sentiment, commodity markets are weaker with copper leading the declines falling 3.5 % overnight. Predictably this has contributed to poor performance in the commodity currencies bloc overnight. Also, in the mix is a drop in WTI prices which adds up to a pretty bad 24 hours for the Aussie.

In early trade, the Aussie has bounced higher off overnight lows  in reaction to  a small bounce higher in regional equity markets, specifically the Nikkei


As we near the April 17 OPEC meeting I suspect the level of scepticism will elevate that a production freeze (excluding Iran and Libya) will accomplish little to alleviate traders’ concerns about the supply side outlook.


Early this morning Janet Yellen was on the wires stating the Fed has no goal for the USD. But she then followed up saying that she sees global growth and the USD as headwinds for the US economy. Dr. Yellen was part of a discussion panel including former Fed heads Ben Bernanke, Alan Greenspan and Paul Volker in New York. While No real market  focus on her comments,  but certainly reinforces the Feds global growth concerns

ASIAN Currencies


Another active 24 hours on the back of a dovish leaning FOMC minutes, coupled with another wave of global risk aversion, has contributed to a persistent rally in JPY as Japan’s surging current account offers investors a lifeboat in turbulent times.

With investors coming to terms that Japan’s policies have little on offer to counter JPY appreciation, we cannot rule out a move to 105 in the near term.  However with PM Abe set to announce an economic stimulus package in May, we can also not rule out new cash injections through “helicopter drops.” As extreme as it may sound, it may be all that’s left in Japan’s fiscal policy arsenal. This drastic stimulus measure   would halt YEN appreciation in its tracks

While the BOJ is becoming more vocal with veiled intervention warnings, traders are discounting any interference threat ahead of the May G7 summit to be held in Japan. With that in mind,  policymakers are unlikely to intervene ahead of the G7 meeting to avoid the appearance of doing so from a competitive devaluation perspective.

The other consideration the BOJ must weigh in this current climate is that intervention will likely only offer better levels for traders to buy  YEN  and therefore will likely have no meaningful impact on the market.

With heightened risk event premium kicking in centering on upcoming  BoJ policy meeting and PM Abe’s  May stimulus package due,  we’re liable to see a slowdown in the short term  YEN appreciation  after the dramatic moves witnessed this week.


Pboc decision makers must be happy with the relative stability of the RMB complex on the heels of the dovish Fed.  Market focus has shifted to Japan so mainland policymakers can revel in  relatively calm waters for a change

The Pboc fix came in at 6.4733 versus 6.4707 pervious.


It should be no surprise to Forex traders closely monitoring inflows,  that holdings of Malaysian local fixed income went up by an astounding $3bn during the month of March, which is the biggest monthly jump since Sept 2013. Most of this influx came on the back of foreign investment.

In early markets with oil trading lower and a general risk-off sentiment gripping markets,  there was heightened USD buying across the EM space. Global investors are flocking to 10-Year US Treasures and JPY as safe havens sanctuaries hedging against further global stock market capitulation.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes