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Jane Foley, senior FX strategist at Rabobank, points out that the best performing G10 currency on a 1 day view is the safe haven JPY followed by the CHF and the USD and a day which has the safe haven JPY at the top of the table and the AUD at the bottom sends a clear message about the levels of anxiety in the market.

Key Quotes

“Traditionally the JPY and the CHF have been the FX market’s preferred safe have currencies. The USD has traditionally had a more volatile relationship with the status of safe haven.”

“Since the start of 2017 the lowest levels that USD/JPY has reached have been the 105 area.   The fact that JPY strength against the USD has not been more pronounced may seem out of kilter with geopolitical events in this period.   These have included tensions between the US and N.Korea, acrimonious talk between the US and Iran, concerns about China’s growing influence in areas such as the S.China sea and increasing signs that the US and the West is worried about China’s growing military might and influence outside of its borders.”

“We would argue that much of the safe haven flow that may have been previously destined to the JPY has been diverted to the USD on the back of the improved yield associated with the USD.   The recovery in US growth in recent years and the Fed’s ability to start normalising its policy was thus freeing the BoJ from unwanted safe haven flows and currency strength.   While we expect that this effect will continue to offer USD/JPY support in the months ahead, it is still likely that the JPY will see bout of buying pressure on worrying news events and in particular geopolitical concerns.”

“Given growing recognition that that the current dispute between the US and China could be more cold war than trade war and on the back of growth tensions regarding Iran we see risk for USD/JPY to push towards the 108.00 area in the coming months.   That said, we expect the USD to outperform a wide basket of other currencies.”