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AUD / JPY wipes out all omicron losses.  And after

 | Business News Today

AUD / JPY wipes out all omicron losses. And after

| Local Business News | Usa news


The omicron fear started right after Thanksgiving in the United States and led to a difficult two weeks for risk assets, with markets weighing the spread extremely fast against the potential for serious infection. As it has become increasingly clear that infections are less severe, risk assets have recovered. The market is also feeling a tide change around lockdowns and restrictions with a growing chorus of people saying it’s time to live with the vaccines and the virus.

I think the AUD / JPY is clearly catching omicron with a sharp fall, followed by a full rally.

Should AUD / JPY rise or fall from here?

The simple argument is that omicron’s fears are brushed aside. US stocks have hit record highs, so they should be back where they were. However, there is more going on below the surface and I can see the argument for higher and lower.

Inferior

The big omicron risk is China. The rest of the world can live with it, but China strictly enforces covid-zero and it’s a losing battle. Omicron is so transmissible that fighting it through large-scale lockdowns will be extremely disruptive to the global supply chain and growth, impacting Australian exports. The time to buy the AUD / JPY will be when China gives up and decides to let the omicron spread.

Higher

The world is now ready to switch from covid. Yes, omicron could be bad and could even overwhelm healthcare systems, resulting in a miserable few months. Despite this, people largely decide that the cost of an additional lockdown is too high for a variant that is unstoppable anyway. So everyone will become covid and hopefully that is enough natural immunity to live normally. The market can see through the short term pain to a better future.

At the moment, I don’t think there is any rush to make a decision. I am closely monitoring the escalation of Chinese cases. Reports say the Xian variant is delta, not omicron, but it’s worth watching closely. Passing the Olympic Games without covid in China is a monumental task. For now, let the markets deal with low year-end liquidity.

AUD / JPY wipes out all omicron losses. And after

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