AUD/JPY: The Perfect Barometer of Risk!
Risk on & risk-off. I am sure we have all heard of this term used before in the financial markets but, what does it really mean and how do we identify this?
First of all, “Risk Sentiment”, this is determined by investors appetite, if investors feel optimistic and confident about future growth they will be more inclined to purchase riskier assets such as stocks. If the above were to happen this would be called a “Risk On” environment. Where riskier assets tend to appreciate in value relative to safe heavens.
“Risk Off” where future economic projections are dismal and worry is in the air of investors. Investors with large sums of money will seek out safe investments with a lower yield such as US treasuries or ultimately cash positions during economic recessions. A perfect example of this was during the latest recession called The Global Financial crisis back in 2008.
Many investors look to GOLD to determine risk appetite and that is a good asset to judge risk, however, another chart to add to your watchlist would be AUD/JPY. Looking at the currencies individually on the left hand side we have the Aussie, a commodity currency that has a lot of exposure to trade and on the right-hand side we have the Yen, considered a safe haven, so matching both of these currencies off against each other will give us a great barometer of overall RISK appetite.
The weekly chart in this article provided should speak for itself....