The price action suggests that risk trends are no longer the dominant driver of the force markets, as US stock markets ended the day down (DJIA -.75 percent, S&P 500 -1.27 percent). Nevertheless, the inverse correlation between the Japanese yen and risky assets, such as stocks, could easily return upon a surge in volatility. Looking ahead, the Australian dollar faces event risk tonight as the minutes from the Reserve Bank of Australia’s December policy meeting will be released. During this meeting, the RBA slashed rates by 100 basis points to 4.50 percent and RBA Governor Glenn Stevens subsequently said that monetary policy was now expansionary, suggesting that they may stop cutting rates aggressively in the near-term. If the RBA meeting minutes reiterate this sentiment, the Australian dollar could actually gain. There is another announcement traders should be watching this week: Wednesday’s meeting of the Organization of the Petroleum Exporting Countries (OPEC). As a commodity currency, the Australian dollar holds a solid correlation with oil (0.74 over the past 20 days). Since OPEC is anticipated to announce a sharp cut in production, a surge in oil could subsequently trigger a rally for the Australian dollar. For more on this, check out our Australian Dollar Forecast.
Related Article: Japanese Yen Surge: Trend Exhaustion or Reminder of Risk?
Visit Daily Fundamentals for the entire summary of the day's economic developments and perspectives.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.
