Monday, December 20, 2021

Aussie-Yen creates roadmap for S&P 500

The Aussie serves as the “risk-on” piece because the country is the top global exporter of iron ore, among other commodities, and its primary trading partner is China. The Japanese Yen serves as the “risk-off” part, as Japanese assets often capture haven flows. The pair is also highly liquid, with both currencies among the five most traded in the world. Taken together, their global exposure through commodity, credit and FX markets can create a road map for other risk assets -- like the S&P 500. 
The Australian Dollar or "Aussie" versus the Japanese Yen
The chart shows the Auussie-Yen has been in a downtrend over the last two months since the Omicron variant headlines broke. And that's likely to continue into the holidays with thin liquidity and light trading volume. Add on this latest variant's rapid spread (and the global lockdowns that come with it) as well as the loss of Senator Joe Manchin's support for Biden's Build Back Better Plan (something that the market was counting on) and it suggests that maybe that traditional holiday "Santa Rally" for risk assets like the stock market is in jeopardy.

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