In the microcosm of the latest movement, the USD/JPY currency cross has fallen sharply. That’s on top of the slight bump detected yesterday. Despite rallying today, it’s still pinched near last week’s multi-month low. The currency pair’s recent move reflects continued turbulence. Additionally, it underscores the diverging expectations regarding monetary policy from large central banks, namely the Bank of Japan (BoJ) and the Federal Reserve (Fed).
The differences in policy outlook between the BoJ and Fed is a key element driving this market dynamic. These events are being closely watched by traders since they can move the entire market — especially the risk-on / risk-off sentiment. Currently, the broader risk tone seems a bit more subdued, which typically pushes safe-haven investors to the safe-haven asset. The Japanese yen (JPY) is historically considered a safe-haven currency. Today, it’s really going up and down like a yo-yo — to market shifts.
Conversations about a US-Japan trade deal have come to the forefront. Investors are still optimistic that an agreement of such stature could provide some much-needed stability and clarity in bilateral trade relations between the two countries. The new and persistent trade war with China remains a troubling complicating factor, yet another factor muddying the waters on global market relations.
Alongside all these explosive developments, the Australian dollar (AUD) has been on a winning streak. The Aussie currency’s major pair, the AUD/USD pair, jumped on fresh bids, quickly re-taking the 0.6350 level in Asia on Wednesday. Nevertheless, the ongoing US-China trade woes continue to cap the upside potential of the AUD/USD pair, reflecting the interconnectedness of global currencies.
The second big trend to consider is the extraordinary strength in gold prices. The price of gold has continued on its rally, achieving an all-time high close to $3,275 per troy ounce. Gold prices are up on the back of heightened demand for safe-haven assets. Much of this increase is due to speculation based on confusion over U.S. President Donald Trump’s tariff intentions. Investors usually go running to gold during periods of geopolitical uncertainty or economic dislocation, pushing up the price.