The Australian dollar is trading above .79 cents though its rally was stalled as North Korea fired a missile near Japan.
“It’s very fluid in forex markets this morning after North Korea shot a missile across Japan to land off the coast near Hokkaido,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader in Sydney.
According to McKenna, the news saw the Japanese yen catch a bid with USDJPY falling from 109.16 earlier to sit at 108.87. On the other hand, the Aussie dollar was knocked back from the mid 0.7960s to sit at 0.7935 in early morning trade.
“The forex market’s focus has now shifted from the weakness of the US dollar to the risk-off tone in due to the North Korean actions,” McKenna said.
He added that “What’s important about the North Korean most action is that it ratchets up the pressure on President Trump and Japan to respond. And that may put them squarely in a face-off with China should they respond militarily,”
“This is no doubt a high stakes game Kim Jong-un is playing as it’s been reported that this is the first time North Korea has shot a missile across Japan since the late 1990’s,” McKenna noted.
“I don’t want to over-egg it but recall that on August 9 President Trump made his “fire and fury” comments about North Korea if it threatens the US or its allies,”
“As we await the response, the Aussie dollar is lower as market nervousness and uncertainty ratchets up a few notches,” McKenna noted.
He added that the Aussie never does well in uncertainty like this, when markets go into a funk, and risk aversion rises materially.
“It may be a storm in a tea cup. But until forex traders hear from US Secretary Tillerson or Mattis or President Trump himself, the Aussie may remain under pressure,” McKenna said.
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