Risk Sentiment
Risk-on / risk-off — the daily mood that moves everything
- Define risk-on and risk-off and recognise the signals
- Identify which currencies are 'safe havens' and which are 'high-beta'
- Read the same FX move under both regimes
Some days the news is mixed and currencies just drift. Other days a single tweet sends AUDJPY plunging 1% in 10 minutes while gold and CHF rip. The difference is risk sentiment.
Risk-on, risk-off — two moods
Risk-on: investors feel good. They sell low-yield 'safe' assets and buy higher-yield 'risky' ones. Equities up, gold down, AUD/JPY up, USD/JPY up. Risk-off: panic. The flow reverses. Equities down, gold up, JPY and CHF rip, AUD and NZD get pummelled.
**USD** (world reserve), **JPY** (deepest sovereign debt market, repatriation flows), **CHF** (Swiss neutrality, current-account surplus), **Gold** (no counterparty risk). When fear strikes, money runs here.
**AUD, NZD** (commodity-exposed, China-sensitive), **EM currencies** (TRY, ZAR, MXN), **Equities, oil, crypto**. When fear strikes, these get dumped first.
The same move means different things
USD/JPY +0.5% on a risk-on day = USD getting bid as the high-yielder. USD/JPY +0.5% on a risk-off day = JPY actually rallying but USD rallying more. Reading the FX move requires reading the regime first.
S&P futures down 2% pre-market on geopolitical news. Most likely FX moves?
- Risk-on = buy risky, sell safe. Risk-off = the reverse
- Safe havens: USD, JPY, CHF, gold
- High-beta: AUD, NZD, EM, equities, oil
- Same FX move means different things in different regimes
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