On Monday, an Israeli attack targeted Iran’s state broadcaster, while the head of the United Nations nuclear watchdog reported substantial damage to Iran’s largest uranium enrichment facility, and Iran urged the United States (US) to force a ceasefire in the aerial war, per Reuters.
Sources told Reuters that Iran had asked many countries, including Oman, Qatar and Saudi Arabia to urge US President Donald Trump to use his influence on Israeli Prime Minister Benjamin Netanyahu to push for an immediate ceasefire.
Market reaction
At the time of writing, the Gold price (XAU/USD) is trading 0.48% higher on the day to trade at $3,400.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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Editors’ Picks
USD/JPY holds gains near 145.00 ahead of BoJ policy decision
USD/JPY consolidates gains near the 145.00 mark early Tuesday as traders keenly await the latest BoJ monetary policy announcements for a fresh direction. In the meantime, no US-Japan trade deal reached at the G7 Summit undermines the Japanese Yen, lending support to the pair amid a US Dollar upswing.
AUD/USD retreats toward 0.6500 amid cautious mood
AUD/USD sustains the overnight late pullback from a fresh YTD peak as rising geopolitical tensions keep investors on the edge and offer some support to the US Dollar. Trade-related uncertainties also undermine the Aussie. However, Fed rate cut bets could cap any meaningful USD appreciation and limit losses for the pair.
Gold price draws support from the global flight to safety
Gold price attracts some dip-buyers in the Asian session, reversing a part of the previous day’s downfall as rising geopolitical tensions revive safe-haven demand. Bets that the Fed will resume its rate-cutting cycle in September benefit the non-yielding yellow metal, though a modest US Dollar uptick could act as a headwind.
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