Forex Today: Risk flows dominate as US and Iran agree to two-week ceasefire
Here is what you need to know on Wednesday, April 8:
Risk flows dominate financial markets in the European morning on Wednesday after the United States (US) and Iran reached a conditional ceasefire for two weeks. The European economic calendar will feature Producer Price Index (PPI) and Retail Sales data for February. Later in the American session, the Federal Reserve (Fed) will publish the minutes of its March policy meeting.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.92% | -1.10% | -0.95% | -0.30% | -1.40% | -1.91% | -1.29% | |
| EUR | 0.92% | -0.19% | -0.04% | 0.62% | -0.47% | -1.04% | -0.38% | |
| GBP | 1.10% | 0.19% | 0.15% | 0.82% | -0.27% | -0.82% | -0.19% | |
| JPY | 0.95% | 0.04% | -0.15% | 0.66% | -0.41% | -0.95% | -0.33% | |
| CAD | 0.30% | -0.62% | -0.82% | -0.66% | -1.07% | -1.60% | -0.99% | |
| AUD | 1.40% | 0.47% | 0.27% | 0.41% | 1.07% | -0.55% | 0.08% | |
| NZD | 1.91% | 1.04% | 0.82% | 0.95% | 1.60% | 0.55% | 0.63% | |
| CHF | 1.29% | 0.38% | 0.19% | 0.33% | 0.99% | -0.08% | -0.63% |
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).
US President Donald Trump announced late Tuesday that he agreed to a two-week ceasefire with Iran on the condition that Iran opens the Strait of Hormuz during this period. Iran's foreign minister said that Iran's military will coordinate passage of vessels and Iran’s semi-official Tasnim News Agency reported that Iran and Oman are planning to charge transit fees. Negotiations will reportedly start on Friday in Pakistan's Islamabad. Meanwhile, Israel's Prime Minister Benjamin Netanyahu's office said that the two-week ceasefire does not include Lebanon.
US stock index surge higher early Wednesday and were last seen rising between 2.5% and 3.5%. In the meantime, the US Dollar (USD) stays under heavy bearish pressure, with the USD Index losing more than 0.5% on the day below 99.00. Finally, crude Oil prices decline sharply, as the barrel of West Texas Intermediate (WTI) loses more than 12% below $89.
Gold gathers bullish momentum in the European session and trades above $4,800, rising more than 2.5% on a daily basis.
EUR/USD rallies midweek and trades near 1.1700, up nearly 0.8% on the day.
GBP/USD benefits from the broad-based USD weakness and rises more than 1% on the day above 1.3430.
The Reserve Bank of New Zealand (RBNZ) announced earlier in the day that it held the Official Cash Rate (OCR) unchanged at 2.25% after concluding the April monetary policy meeting. In the post-meeting press conference, RBNZ Governor Anna Breman noted that they have discussed raising the policy rate today but explained that they are not yet seeing rising prices becoming embedded in inflation expectations. NZD/USD gains nearly 2% on the day and trades near 0.5850 in the European morning.
USD/JPY trades deep in negative territory at around 158.00, down 1% on the day.
AUD/USD gains 1.5% on the day and trades at its highest level since March 20 above 0.7070.
USD/CAD declines for the third consecutive day on Wednesday and trades below 1.3850.
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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