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Risk On-Risk Off (RORO) is still the dominant force for FX. The USD and JPY should continue to outperform ‘risk-on’ currencies in a ‘risk-off’ environment, in the opinion of economists at HSBC.

Key quotes

“The dominance of the RORO factor suggests that markets are paying relatively little attention to the differences amongst the various policy responses delivered in the last few weeks.”

“What matters appears to be the binary nature of COVID-19 and the economic fallout from the spread of the virus. If markets still think things are getting worse, then we will be firmly in ‘risk-off’ territory.”

“The USD and JPY should continue to fare well, while currencies of smaller open economies – the AUD, NZD, GBP and many EM FX – will continue to struggle in a ‘risk-off’ environment.”