Forex Today: Oil and USD rise again as safe-haven flows return
Here is what you need to know on Thursday, March 12:
Markets turn risk-averse in the second half of the week as the conflict in the Middle East widens. The US economic calendar will feature Housing Starts and Goods Trade Balance data for January, alongside the weekly Initial Jobless Claims figures on Thursday.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | -0.34% | 0.51% | -0.13% | -2.05% | -0.64% | 0.27% | |
| EUR | 0.02% | -0.33% | 0.55% | -0.12% | -2.05% | -0.63% | 0.28% | |
| GBP | 0.34% | 0.33% | 0.89% | 0.21% | -1.73% | -0.30% | 0.60% | |
| JPY | -0.51% | -0.55% | -0.89% | -0.63% | -2.53% | -1.13% | -0.23% | |
| CAD | 0.13% | 0.12% | -0.21% | 0.63% | -1.93% | -0.50% | 0.39% | |
| AUD | 2.05% | 2.05% | 1.73% | 2.53% | 1.93% | 1.45% | 2.36% | |
| NZD | 0.64% | 0.63% | 0.30% | 1.13% | 0.50% | -1.45% | 0.91% | |
| CHF | -0.27% | -0.28% | -0.60% | 0.23% | -0.39% | -2.36% | -0.91% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The International Energy Agency (IEA) announced on Wednesday that its 32 member countries unanimously agreed to make 400 million barrels of oil from their emergency reserves available to the market. Although this decision limited crude Oil prices' upside, latest headlines coming out of the Middle East revived supply fears.
Iraq reportedly shut down oil port operations after Iran attacked two foreign oil tankers, while Bahrain, Kuwait, the United Arab Emirates intercepted Iranian missiles and drones. Additionally, Saudi Arabia's Defence Ministry said two drones heading towards the Shaybah oilfield were destroyed over the kingdom’s Empty Quarter desert.
In the meantime, the Chinese government has effectively banned refined fuel exports for March "with immediate effect”, Reuters reported on Thursday. This measure comes as another step to pre-empt a potential domestic fuel shortage caused by the US-Israeli war on Iran.
The barrel of West Texas Intermediate (WTI) was last seen trading at $90,40, rising about 3.5% on a daily basis, and the barrel of Brent was up 3% at $94.40.
The US Dollar (USD) benefits from the souring risk mood, with the USD Index staying in positive territory slightly below 99.50, while US stock index futures lose between 0.7% and 0.9% on the day.
EUR/USD stays on the back foot and trades in the red near 1.1550 after posting marginal losses on Wednesday.
GBP/USD remains under bearish pressure on renewed USD strength and trades below 1.3400 in the European morning on Thursday.
USD/JPY rose more than 0.5% on Wednesday and touched its highest level since mid-January above 159.20 in the early Asian session on Thursday. The pair corrects lower in European trading hours and trades slightly below 159.00.
Gold remains relatively quiet early Thursday and fluctuates below $5,200.
(This story was corrected on March 12 at 07:50 GMT to note that the International Energy Agency announced its decision to release oil reserves on Wednesday, not Thursday.)
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.