Forex Today: US Dollar benefits from risk-aversion ahead of mid-tier data releases
Here is what you need to know on Wednesday, September 3:
The US Dollar (USD) gathered strength against its rivals on Tuesday as it attracted safe-haven flows. The US economic calendar will feature JOLTS Job Openings and Factory Orders data for July. Later in the session, the Federal Reserve's (Fed) Beige Book and comments from policymakers will be scrutinized by market participants.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.59% | 1.00% | 1.13% | 0.46% | 0.52% | 0.65% | 0.74% | |
| EUR | -0.59% | 0.40% | 0.47% | -0.12% | -0.07% | 0.06% | 0.15% | |
| GBP | -1.00% | -0.40% | -0.06% | -0.52% | -0.47% | -0.34% | -0.21% | |
| JPY | -1.13% | -0.47% | 0.06% | -0.59% | -0.58% | -0.43% | -0.36% | |
| CAD | -0.46% | 0.12% | 0.52% | 0.59% | 0.07% | 0.19% | 0.32% | |
| AUD | -0.52% | 0.07% | 0.47% | 0.58% | -0.07% | 0.13% | 0.26% | |
| NZD | -0.65% | -0.06% | 0.34% | 0.43% | -0.19% | -0.13% | 0.13% | |
| CHF | -0.74% | -0.15% | 0.21% | 0.36% | -0.32% | -0.26% | -0.13% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The intense selloff seen in global bond markets triggered a flight to safety in financial markets on Tuesday. Yields on major economies' long-dated bonds rallied higher, while equity indexes remained under heavy pressure. In turn, the USD Index gained more than 0.6% on the day and erased the majority of the losses it suffered in the previous week. In the European morning on Wednesday, the USD Index holds steady at around 98.50. Meanwhile, US stock index futures trade mixed after Wall Street's main indexes closed deep in negative territory on Tuesday.
Gold was another asset that capitalized on risk aversion on Tuesday. XAU/USD rose more than 1.5% on Tuesday and continued to push higher to touch a new all-time-high $3,547 in the Asian session on Wednesday. At the time of press, the pair was consolidating its gains near $3,530.
The data from Australia showed that the Gross Domestic Product (GDP) expanded at an annual rate of 1.8% in the second quarter. This reading followed the 1.4% growth recorded in the first quarter and came in better than the market expectation of 1.6%. Following Tuesday's sharp decline, AUD/USD found support on upbeat GDP data and was last seen trading above 0.6500.
Bank of Japan (BoJ) Governor Kazuo Ueda said on Wednesday that there is no change in stance on raising interest rates. Ueda further stated that he will scrutinize without preconception whether the economy and prices move in line with their forecasts. Following Tuesday's rally, USD/JPY continues to edge higher and trades above 148.50.
EUR/USD struggles to gain traction early Wednesday and trades below 1.1650 after losing more than 0.5% on Tuesday.
GBP/USD fell more than 1% on Tuesday as the yield on the 30-year gilt surged to its highest level since 1998. The pair remains under pressure and declines toward 1.3350 in the European morning on Wednesday.
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.
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