What currency is strong when the market is at risk? You need to know, not all currencies will be strong when the market is in good condition and not all currencies will depreciate when the market is at risk.
So, when market sentiment fluctuates, which currency will be the investor's choice? We need to understand that market sentiment is divided into two.
Risk-on sentiment is the state when the market is in good and positive condition. Risk-off sentiment occurs when market conditions are at risk.
When sentiment is risk-on, investors will feel more confident, secure and optimistic towards a set of investments that provide high returns. Although quite risky but double profit opportunities such as stocks and commodities.
What currency is actually strengthening at the moment? The answer is the Australian dollar and the New Zealand dollar.
Known as a commodity currency, Australia is well known for its mining sector while New Zealand is known for its dairy products.
The Aussie and Kiwi dollars are preferred because of the high interest rates and the potential to give high returns to investors.
When market sentiment shifts to risk or risk-off, investors feel scared, panicked and more cautious about their investments due to the uncertainties that hit the market.
Investors will sell risky assets and switch to safer assets with lower returns such as gold and bonds.
Currently, the currency of choice is the Japanese yen (JPY) and Swiss franc (CHF) due to its low interest rate so it is known as the ‘safe-haven currency’.
But there is one special currency and it is categorized as a safe-haven which is the US dollar. We will be able to see these three currencies strengthen when the market is at risk.
Ultimately, positive market sentiment will cause the AUD and NZD currencies to rise but the AUD, JPY and CHF to decline.
But when the market is at risk, USD, JPY, CHF will strengthen while AUD, NZD will depreciate.
Because of this, investors need to be sensitive to changes in market sentiment to facilitate decision making in trading and investing.
